In his Wall Street Journal column Holman Jenkins suggests some interesting analogs to Elon Musk. Howard Hughes:
It is not a bad time to remember that Elon Musk created two amazing companies—not counting his role in founding PayPal —in the form of his car company, Tesla, and his rocket company, SpaceX.
He likely would not have achieved these successes if he weren’t a little crazy. One reader emails to compare him, both flatteringly and unflatteringly, to Howard Hughes.
and Enron:
Not to elicit howls, but Enron was a company that found itself trying to sustain a stock price its underlying business couldn’t support. Here was an overlooked progenitor of what became the signature corporate scandal of its era. A gas-pipeline company that was selling for $20 suddenly was boosted to $90 based on internet-era hype about the commodification of everything. Notice any similarity to today’s belief among a certain public that Tesla is solving the climate problem and government policy will guarantee Elon’s success? What followed, at Enron, was management’s resort to funky, illegal and then frankly piratical measures to support a valuation received from investors intoxicated with new-age thinking.
Are those really reasonable comparisons to Elon Musk? I don’t recall either one of them basing so much of their business on rent-seeking. Maybe a better comparison for Elon Musk is John D. Rockefeller. After all the basis of his fortune was war-profiteering during the Civil War.
Companies whose stock prices far exceed what its underlying business can support are hardly uncommon these days. Indeed, the biggest names in stocks, i.e. Facebook, Apple, Amazon, Netflix, and Google, all fall into that category.
Maybe we should stop thinking that there is any relationship between stock valuation and earnings. Maybe there is just too much money looking for a presumedly safe landing spot.
Too much money chasing, or yield chase, exists. Irrational views on future earnings potential certainly exists. But I think declaring a total disconnect between earnings and stock prices is a bridge too far. It’s more situational.
I do not think that Apple can justify a $1 trillion fully capitalized value (shares outstanding X price per share) based on earnings. That’s $150 for every man, woman, and child on the planet. No way.
Amazon’s fully capitalized value is just about the same. I do not think that can be justified based on earnings for the very same reason.
I don’t think it’s “a bridge too far” to say that the FAANGs are out of whack.
Elon Musk absolutely rent-seeks. None of his companies since Paypal have ever made money on their own, any profits shown came out of taxpayer pockets. Without carbon credits and other massive subsidies his whole business model falls to the ground. Good luck getting Trump to bail him or his investors out when the rickety edifice finally crashes and burns, especially after Musk very publicly withdrew from the President’s Business Advisory Council after the POTUS took us out of the corruptocrat-enrichment scheme also known as the Paris Climate Accord.
Me neither. It’s dot.com-like.