Another astonishing new share flotation in the US. A business messaging application called Slack (hardly a great novelty – I can recall various versions of such going back 20 years) has floated and immediately moved to a valuation, based on share price of 25 billion dollars.
This is a business that turns over 400 million dollars and managed to lose more money than its previous year’s turnover. As the BBC explainer on this says, losing money when you start a business is normal (easier when it is someone else’s money, I might add). The BBC refers to the few successes that became worth billions, but in recent examples the valuation is starting at billions, in effect completely discounting any chance to make money like that in the future. The sure fire winners are the founders, who have struck lucky.
The valuation is clearly totally detached from reality and the only other people who will make money are those who resell their initial allocation of shares to those who haven’t got them and want to speculate, at a nice profit. These people only invested to make this resell profit, like ticket touts. They don’t care in the slightest if the underlying business is any good any more than a ticket tout has any interest in the singing merits of Taylor Swift.
This sort of activity has not much direct relevance for investors in retail funds, but when it becomes the norm, one must worry. Why? Because if 25 billion dollars goes into a worthless business and is later lost, the investors in question will sell other assets to balance their books and those sort of sales have a significant negative effect on the market.
And that is not all – a crash in a certain segment of the market can be the start of a domino effect, because the market mood changes and FOMO (fear of missing out) is substituted by a rush for the emergency exits.
If you have big profits in tech funds, now might be the time to think about securing them!
You must be logged in to post a comment.