at US$2.5 trillion and trades at 12 times revenue; Tesla Inc. has a market cap of US$612 billion and trades at eight times revenue; Apple Inc. stands at US$2.75 trillion with a valuation of more than seven times revenue; and Google parent Alphabet Inc. is valued at US$1.6 trillion and Meta Platforms Inc. is at US$671 billion, yet both trade at over six times their revenue. Only Amazon.com Inc., with a US$1.25-trillion market cap, is being left behind, trading at only 2.2 times revenue.
It’s understandable to assign higher revenue multiples to smaller and highly disruptive companies with exponential growth potential.
It isn’t as if this hasn’t happened before. Take Sun Microsystems Inc., which traded at more than 10 times its revenue prior to the bursting of the 2000 tech bubble. In 2002, chief executive Scott McNealy responded to the aftermath with a thought-provoking quote. “At 10 times revenues, to provide a 10-year payback, I would have to distribute 100 per cent of our revenues to shareholders for 10 consecutive years in the form of dividends. This assumption assumes that I can achieve such an arrangement with our shareholders, that we have no cost of goods sold , that we have zero expenses , that we pay no taxes , and that you, as shareholders, pay no taxes on the dividends received ,” he said.
“Additionally, this assumption presumes that, with no investment in research and development for the next 10 years, we can maintain the current revenue rate. Considering these unrealistic assumptions, would any of you be interested in purchasing our stock at US$64? Can you fathom the absurdity of these basic assumptions? We don’t need any transparency or footnotes to recognize their implausibility.
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