Tesla's nearly 2,000% gain from its IPO eight years ago shows the power of disruption over profits
- Shares of Elon Musk's Tesla are up nearly 2,000 percent from the company's $17 per share initial public offering, which was held eight years ago on June 29, 2010.
- In similar fashion, another technology visionary, Reed Hastings, has led Netflix to stunning equity returns with minimal profitability.
Tesla CEO Elon Musk has made the electric car maker’s shareholders a lot of money.
The company’s stock is up nearly 2,000 percent from its $17 per share initial public offering, which was held eight years ago on June 29, 2010.
The stock market is rewarding companies that have a believable narrative on how to survive in a rapidly changing world versus focusing on near-term profit streams. Companies' current earnings are of little consequence, if their businesses get crushed by tech juggernauts like Amazon or Netflix in a few years.
Only four stocks in the entire S&P 500 have outperformed Tesla since its IPO.
Telsa’s stock performance is all the more impressive given the company has never made money on an annual basis. The company lost nearly $2 billion last year and burned about $3.4 billion in cash after capital investments.
Investors are betting that Musk’s company will disrupt the entire auto industry and gain significant market share as the world moves toward electric cars.
Even if Tesla misses its target to produce 5,000 Model 3 cars per week around the end of the second quarter and its shares drop dramatically early next week on a disappointing data release, the stock will likely still be up significantly since its IPO.
On Thursday Reuters reported Tesla is not producing enough Model 3s per shift to meet its target, according to workers at its main plant in Fremont, California.
In similar fashion, another technology visionary, Reed Hastings, has led Netflix to stunning equity returns with minimal profitability. Investors believe Netflix will succeed globally and eventually be able to raise its prices.
Last year billionaire John Malone explained why he believes Netflix will dominate the future. He was not dismayed by Netflix's guidance of up to $8 billion in content spending for 2018 at the time and multibillion-dollar cash burn. In fact he said the company's massive investments are essential for its success.
The internet "makes scale even more important in the media business, where scale always was important. It's all about scale," Malone said at the Liberty Media annual investor meeting in November.
To be sure, profits can still matter. Two solidly profitable health-care-related companies comprised two of the four top S&P 500 performers.
Artificial heart maker Abiomed was the No. 1 performer in the time period with a 4,107 percent return, while Align Technology’s stock rose nearly 2,200 percent. Align makes Invisalign clear aligners for the dental market.
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