Bubble Trouble

Jan 20

During the Dot Com/Tech bubble of the late 1990’s, Sun Microsystems stock rose from $5 to $64, representing ten times sales revenue. After the Tech Crash beginning in March 2000, it fell back to $5.

In a March 31, 2002 interview, Scott McNealy, co-founder and CEO of the company had this to say about the roller coaster ride of his stock:

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64?
Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”

At the top of the March 2000 market, there were 29 company stocks selling for ten times sales or more. By 2021, there were companies selling at fifteen, twenty, and higher multiples of sales.