3/24/2023 0 Comments Hindsight capital![]() ![]() Not all of the world’s technology companies have achieved what Google has. This incredible growth tells the story of technology over the course of the past two decades. Its earnings have risen to an astonishing $30 billion and its valuation approaches $1 trillion. However, Alphabet, as it is now known, has an unassailable position in internet search and used this to create a hugely profitable business. Given the still fresh scars of the dotcom bust, many investors were understandably wary of a business that was valued at an eye-watering earnings multiple of around 60. Its market value at that time was $23 billion. Take Google, which was founded in 1998 and already a leader in search when it floated in 2004. Others – such as in the UK – simply didn’t fulfil the promise baked into their lofty share prices and ended up as far smaller companies, or drifted into obscurity.īut for the few technology companies that did get it right, the subsequent growth and scale of earnings have been phenomenal. Many companies – including notoriously short-lived businesses such as – were doomed from the outset by huge advertising spending and flawed business models. Even today, just 11% of US retail sales are online, according to the US Census Bureau. Of course, amid the “irrational exuberance” of the late 1990s, many companies and investors had completely unrealistic expectations about the speed of online adoption. It has since increased in price more than ten fold. Amazon, for instance, traded at a forward price/earnings (P/E) multiple of 80 a decade ago and was a no-go area for many stock pickers. Yet it has paid off in spades more recently. Similarly, after the crash, the idea of looking beyond sky-high valuation multiples and buying into long-term growth was frowned upon. Yet that has been a winning strategy for many of today’s biggest internet companies – such as Facebook and Netflix. ![]() No-one today would dispute the fact that the internet has transformed the way we live and work.Īt the time, internet pioneers were ridiculed for their focus on attracting “eyeballs” and building market-leading positions – at the expense of revenue and profits. Looking back, however, the past two decades have shown that many of the insights of early internet investors were fundamentally correct – even if their timing was way off the mark. In the UK, the episode dealt a heavy blow to the culture of individual share ownership. At the turn of the year 2000, the “dotcom” bubble burst and shares crashed. During the late 1990s, amid a frenzy of speculation, investors and day traders were lured into hot “TMT” (technology, media and telecom) stocks – including numerous new businesses yet to turn a penny in profit. In January 2000 global stock markets stood on the precipice of a crash that was set to obliterate both fortunes and reputations.
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