A closer look of Fairfax Financial Holdings’ letter to its shareholders uncovers an interesting fact that the three tech-based companies, namely, Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB), which are usually in the lists of many investors, aren’t the choice of Fairfax’s Chairman and the CEO, Prem Watsa.
While briefing the events associated with the company’s investment decision and follow-on action with respect to BlackBerry Ltd (NASDAQ:BBRY), Watsa highlighted that how the leading tech companies like Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB) are overvalued and could soon turn up into another tech collapse like that of 1999-2000 era. For explaining his case, Watsa mentioned that Twitter Inc (NYSE:TWTR) listed on the stock exchange right after BlackBerry Ltd (NASDAQ:BBRY) declared its convertible debt issue.
Mr.Watsa added that Twitter Inc (NYSE:TWTR) debuted at a price of $26 per share, which implied a market value of $18 billion. Watsa recalled that even as Twitter’s revenue was close to $665 million and losses as much as $645 million, most of the investors faced difficulty buying the stock unless they belonged to those brokerage companies, which acted as underwriters. Watsa compared that at the time of Twitter’s listing, BlackBerry Ltd (NASDAQ:BBRY)’s market cap was $3 billion, with $8 billion in revenues and $2.6 billion in cash with no debt outstanding except the convertible debt. This means that at $26 per share, Twitter Inc (NYSE:TWTR) was overvalued, but then it is trading near a $55 mark now with $39 billion market cap.
Watsa also compiled a table showing the ballooned market valuation of some of the tech companies. The table lists Netflix, Inc. (NASDAQ:NFLX) with a P/E ratio of 118 and $27 billion market cap, while its Price to Sales ratio is 6.0. Facebook, Inc (NASDAQ:FB) has a $174 billion market cap with P/E and Price to Sales ratio at 116 times and 21 times respectively. They are over speculated and could end worse than the previous tech bubble, concluded Watsa.