The dotcom boom — and bust — are stock market history. It was a time of great promise, and some euphoria, as the internet was set to change the world. And it did, in more ways than were likely predicted at the time. But euphoria is never a great thing when investing. Valuations can get stretched (to say the least), and even great companies no longer make great investments. I think Rivian (NASDAQ: RIVN) may just be an example of this happening again.
Let’s take a quick refresher on what exactly happened all the way back in 2000, and compare it to the recent initial public offering (IPO) of Rivian.
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The dotcom bubble
Now, there was a lot going on in the 1990s in the lead-up to the dotcom bust. Safe to say, though, that the internet was the new craze, and almost every company with a ‘.com’ website address was listing on the stock exchange at a sky-high valuation.
Online shopping companies were a particular area of interest. As an example, Pets.com listed in February 2000, and by November that year the company declared bankruptcy. At the time of the IPO filing, the company had generated almost $6m in revenue, but incurred $62m in losses. It wasn’t a sustainable business model.
Some did survive, and Amazon is probably the most famous as it stands today. The share price topped at about $113 in 1999, but didn’t reach this height again for over 10 years. The share price of another well-known company, Cisco Systems, reached over $80 in 2000, but has never regained this price, even today.
Amazon and Cisco are clearly great businesses. It’s just that back then, they may not have been good investments. Particularly in the case of Cisco. So is the same thing happening again?
Rivian went public via an IPO last week. In its filing before listing, the company described itself as a designer, developer, and manufacturer of category-defining electric vehicles (EVs). The EV market is garnering a lot of attention right now. It’s a hot sector. Maybe with some euphoria? Tesla’s market value did just pass $1trn, after all.
My biggest surprise, though, was checking my financial data software and seeing that Rivian has generated zero revenue. Nothing. The IPO filing says: “We are a development stage company and have not generated material revenue to date.”
There’s nothing wrong with this, of course. But after the shares listed, Rivian’s market value is now almost a huge $127bn!
That’s pricing in a lot of success. Or in other words, it’s priced to perfection.
Rivian: bull case
There’s clearly a sizeable market for Rivian to expand into. Before long, I think the majority of us will be driving EVs. I highlighted their growing popularity here.
And Rivian has a major customer, Amazon. In fact, the company has ordered 100,000 electric delivery vans from Rivian. Not even Tesla was able to boast such a big customer so earlier on.
Rivian did remind me of the dotcom bubble. I’m not saying it’s another Pets.com, and I’m generally enthusiastic about the booming EV market. But to me, it might be another Cisco Systems where the valuation makes it uninvestable. It’s perhaps a good business, but likely not a good investment for my portfolio. I think there are better growth stocks out there.