Loading ...One yardstick of the growing insanity is the money- burning tech companies whose shares keep going up no matter what.
Take Netflix (NFLX), for example, which casually announced in an April letter to shareholders that it expects a negative free cash flow (FCF) of $2 billion this year, up from “only” $1.7 billion in 2016.
Last October, the company said it would have to raise another $800 million in debt (adding to the over $2.2 billion it already had), all in the name of adding quality content, aka movies and TV shows, to the site.
It’s no secret in investment circles that Netflix doesn’t really make money, a negligible fact that hasn’t kept the stock from skyrocketing.
In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter, crushing Wall Street estimates and propelling the stock upward by more than 10%.
Never mind that Q2 free cash flow was minus $608 million, a year-over-year increase in losses of $354 million. Investors gobbled up the “good news” and sent shares soaring to new heights of over $188 in July.
We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.
Of course, there is no way that this can go on. And as stocks are being caught out in the rain, gold and silver will get their day in the sun, as has historically been the case.