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THE FINANCE GHOST: Tech execs need to apply the brakes

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A spending binge by tech bosses shows no sign of stopping - even as profits and cashflows retreat, writes FinanceGhost.

Snap Inc has lost nearly 80% of its value this year. After trading higher than $83 in September 2021, the share price is now below $10, a whopping 88% drop from peak to current levels. This isn’t a fraud or a scandal; it’s just a business that is symbolic of the poor commercial decisionmaking in far too many tech companies.

The cause of this discontent is the use of the price/sales multiple, a measure that reads the first line of the income statement and then ignores the rest. Used by venture capitalists and investors in listed tech firms, it encourages all the wrong kinds of behaviour. “Growth at all costs” isn’t a strategy that the accountants would approve of.

 

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