Rising rates lift the cost of capital, making non-cash-generating businesses less attractive. These are the companies that say returns are not too far away.
During the dotcom bubble at the turn of the century, there was little reward for companies adhering to traditional performance metrics. The pursuit of the “network effect” – grow customers and size at all costs, even if you generated no revenue – fuelled a meteoric rise in prices, which was as impressive as the subsequent bust.
Today, the second-generation of tech players has been far more successful in achieving the network goal. The adoption of technology solutions to support our daily lives has led to the US market being dominated by major tech players, each profitable and having crossed the profit divide.
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Elio D'Amato is from the Australian & NZ team at data research firm Stockopedia.
