Investors Are Behaving as if the Future Has Already Happened

By Charlie Bilello

17 Nov 2021

Rivian ($RIVN) went public last week in one of the largest IPOs ever, raising $12 billion and ending its first day of trading at a market cap of $87 billion.

Only a week later, its market cap has surged to $149 billion, higher than both General Motors ($GM) and Ford ($F).

Why is that surprising?

Rivian is just starting to sell its electric vehicles, projecting $0-$1 million in revenue during the 3rd quarter. By comparison, both GM and Ford had over $130 billion in revenue in the last year.

But why is that relevant? Isn’t investing about about the future, not the past?

Sure it is, but that future cash flow stream is unknown and Rivian investors today are behaving as if it’s money in the bank, as if the future’s already happened.

By comparison, when Tesla went public in June 2010, it had a market cap of $2.2 billion on sales of $113 million. At 19x sales, it wasn’t cheap, but high growth companies with innovative technologies never are. And at $2.2 billion, it had room to grow into high expectations.

Tesla didn’t hit $100 billion in market cap until January 2020. By that point its annual sales had grown to $25 billion, giving it a price to sales multiple of 4x at the time.

Today Rivian is trading at $149 billion market cap with no sales. When will its sales hit $25 billion?

It could happen next year (almost impossible), take a few years, or never happen. No one knows.

What we do know is that investors are paying a multiple on sales that we have never before seen for a company of its size. Rivian may very well be “the next Tesla,” but that’s far from a certainty: a lot can happen in the coming years to derail or delay that trajectory.

And given its current valuation, it’s already trading as if it’s the next Tesla, meaning there’s no room for error. What happens if everything doesn’t go perfectly according to plan? A massive repricing.


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