Snowflake and Tesla are the poster children for irrational valuations and outsized CEO compensation packages.
Investors – or more accurately “speculators” – value Analytics company Snowflake (tkr: SNOW) at 183x Revenue. That’s right, not 183x depressed earnings. 183x revenue. ($110 billion Market Value on approximately $600 million of Revenue). Speculators value Snowflake 9x more than its venture investors did in the company’s most recent private round in February 2020. Snowflake’s Data Warehouse and related Analytics product portfolio largely piggybacks off of AWS, Azure and GCP. What will happen to Snowflake’s equity valuation when the three aforementioned companies decide they want to capture some of Snowflake’s revenue growth and inflated valuation for themselves?
SNOW’s inflated valuation has resulted in a rich options-laden compensation package for Snowflake CEO Frank Slootman (Bloomberg highlighted last week.) No offense to Mr. Slootman, but he is hardly a company founder having joined Snowflake in April 2019.
Tesla’s $567 billion Market Value is equally irrational. This translates to approximately 19x revenue and values Tesla at more than the rest of the automobile sector combined (Toyota, Honda, Hyundai, VW, GM and Ford combined Market Value is approximately $490 billion). We have heard all of the arguments about how Tesla is not a car company but is instead a Battery company or an Energy company. Tesla is not alone. There is a basket of richly-valued Electric Vehicle and related companies (LiDAR anyone?) that can only end one way.
We have previously written about Mr. Musk’s compensation package which you may access HERE.
This market euphoria can only end badly. When it ultimately does, it won’t be as bad as the market prognosticators say it is.