(Bloomberg Opinion) -- “Stock price, bro” is an established response to anyone expressing skepticism about Tesla Inc. It’s shorthand for “If things are so bad, then why is the stock price so high (bro)?”
I was reminded of this during the first few days of trading for Saudi Arabian Oil Co., which debuted on Riyadh’s stock exchange earlier this month. I’ve never been able to square Crown Prince Mohammed Bin Salman’s $2 trillion price tag for Saudi Aramco with the company’s financials; my last stab at valuation came in a bit below $1.5 trillion. So when it breached the prince’s price briefly on only its second day of trading, my Twitter feed was swamped with “stock price, bro” taunts from accounts held by fans of the company (at least some of which appeared to belong to real people).
There is something quite satisfying in seeing the same rebuttal used by Tesla’s electrified bulls also being deployed in defense of the biggest of Big Oil (it’s common for Tesla’s critics to be branded as shills for fossil-fuel producers). It also reveals something in common between these two stocks.
A few years ago, I wrote about some similarities I saw between MBS, as the prince is known, and Elon Musk, Tesla’s CEO. Chiefly, they are both ostensibly trying to pull off seemingly impossible tasks: transform Saudi Arabia into a thriving, diversified economy and upend the incumbent automobile (plus ride-sharing, energy and utilities) industry, respectively. They are also largely unfettered in their pursuits, with MBS having centralized state power in his own hands, while Musk’s fellow board-members barely demonstrate proof of life. Plus, they personify their respective causes. To a large degree, MBS is the Saudi reform project, and Tesla’s identity (and objectives) are bound up inextricably with Musk’s.
Similarly, Aramco and Tesla appear to signify so much more to their respective bases than mere companies. Apart from the “stock price bro” variants, nationalist sentiment, including images or mentions of MBS, featured in some of the feedback I got on Aramco. This echoed the comments of Saudi Energy Minister Prince Abdulaziz bin Salman (the crown prince’s half brother) at the recent OPEC+ meeting: “It’s a proud day for all of us; it’s a proud day for Prince Mohammed to celebrate.” From the get go, Aramco’s IPO was marketed as the keystone of Saudi economic reform (see this). Perceived criticism of Aramco can, therefore, be perceived as criticism of the Kingdom itself.
As for Tesla, die-hard fans regard it as the vanguard of a green future. Conversely, if you’re not sufficiently “for” Tesla, then your commitment to the planet may be questionable. Such sentiment isn’t just the preserve of Reddit sub-groups either. Giving a deposition earlier this year related to a lawsuit concerning the SolarCity Corp. acquisition, Musk on several occasions responded to questions about board meetings and financial projections with snipes about the lawyer’s supposed eco-enmity. For example:
Lawyer: ...Going through the presentation, if you take a look at the quarterly overview, this is going to be on page six.Musk: Do you drive a gasoline car?Lawyer: Yes.Musk: How embarrassing. You can afford an electric car. Save the environment.Lawyer: I’m one of the few. I appreciate that.Musk: Why do you hate the environment?Lawyer: I haven’t sent a rocket into space, so I guess I haven’t hurt the environment doing that.(1)
Stocks, just like any marketable commodity, necessarily come with a dash of mystique. Some flag-waving around Aramco’s IPO isn’t so unusual; privatizations have come with claims of societal renewal ever since the U.K.’s wave of them in the 1980s. In Tesla’s case, the basic math of spending vast amounts of capex upfront to build a new-model car company before any profits might show up demands a narrative focused on the horizon rather than the latest quarterly filing.
There’s an inherent weakness to an equity story when the underlying numbers don’t quite back it up, though — which is where “stock price, bro” comes in. It’s a fait accompli; unarguable in one sense but also fragile. Anyone recalling, say, the tech bubble, the housing bubble or the commodities supercycle can tell you that price and worth don’t necessarily align on any given day. Indeed, when Tesla surged on a certain frenzied day in August 2018, “stock price, bro” arguably entered a new, meta dimension where the stock price was high only because Musk had tweeted a $420 figure which was itself based partly on a joke about getting high.
All companies want their stock to rise, of course, but obsessing over it can carry costs of its own. Musk’s desire to prove a point with short sellers fed the erratic behavior resulting in last year’s “funding secured” debacle. With Aramco, the $2 trillion goal, which began with MBS, stymied some of the other objectives for the IPO. While international investors mostly balked at that price(2), they probably would have bought a bigger stake at a lower price, providing more cash upfront and a more credible valuation. As it is, the “family and friends” IPO Riyadh opted for got the headline price, but one so stage-managed it is difficult to see why investors from outside the region would take it as a benchmark for future rounds. Telling a fund manager to buy into a sub-4% dividend yield because, well, that’s the number on the screen won’t really cut it if there are 6% yields available elsewhere.
Nonetheless, the ultimate result here could be that my analysis is simply wrong and the bullish valuations for Aramco and Tesla prove durable. I’ve been perplexed by Tesla’s valuation for some time now, and the stock on Wednesday was within a whisker of its all-time peak, so I guess I’ve been missing something for quite a while. Equally, I cannot deny that Aramco’s market cap has begun with a “2” in recent days.
Still, it is puzzling that expressing an opinion about something as abstract as the valuation of a company can be construed as an outright attack on that company (or its industry/home country/home planet). After all, bulls need relative skeptics; if optimism were universal, then from whom would they be able to buy more stock?
Indeed, it’s this symbiosis that underpins my favorite thing about the whole “stock price, bro” argument: it is the exact same argument being made by short-sellers. They too point to those high prices and use them to justify their position. It’s just that those high prices make them want to sell more of the stock rather than hit the green button, bro.
(1) Transcript of Elon Musk's videotaped deposition on June 1, 2019, re: Tesla Motors, Inc. Stockholder Litigation (Court of Chancery of the State of Delaware).
(2) Surveying 31 asset managers spread around North America, Europe and Asia and holding $3.8 trillion, analysts at Sanford C. Bernstein found a mean valuation for Aramco of $1.26 trillion (What do $3.8tn of asset managers think of the Aramco IPO, December 2, 2019).
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Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.
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