The shape-shifting world of investing

For most publicly traded companies, metrics like revenue growth, net income, operating income, free cash flow, and balance sheet strength are pieces of information that help investors evaluate the operating performance of a company.

However, the largest companies, as well as the analysts who cover them, sometime find ways to change the narrative about how they should be judged.

For example, many years ago, cable companies were given a new outlook when entrepreneur and Liberty Global (LBTYA) Chairman John Malone convinced Wall Street to discount net income as a metric because it could be heavily manipulated by one-time charges and write-downs.


Tech Plays

Currently, Amazon (AMZN) and Netflix (NFLX) have succeeded in persuading Wall Street analysts to evaluate them based on revenue and subscriber growth.

With Amazon growing revenues at 30%-plus, and Netflix having nearly 120 million subscribers, if analysts buy those evaluation metrics, as they clearly have, then those companies get rewarded with high multiples on their stock price.

Big Valuations

A  $1,000 investment in the Netflix IPO back in 2002 is now worth $293,000, according to my calculations.

With Netflix becoming the most valuable media company on the globe, exceeding even Walt Disney (DIS), which has far more revenues and cash flow, clearly how companies are evaluated matters.

In my opinion, a company’s stock price and overall market valuation depend on these sometimes shifting metrics.


A highly valued stock price means more financing options for a company.

Should Disney, Netflix, and other media companies be evaluated using the same metrics? There is no standard formula in my view.

These kinds of issues are part of the investment world and puzzling through them on a case-by-case basis takes experience and judgment, in my opinion.

Photo Credit: James Jordan via Flickr Creative Commons