Culture Clash: Wall Street Has a Problem With Silicon Valley

For all that tech and finance have done to make each other money, one would have thought they'd have figured out by now that they have very different outlooks on life, despite the myriad ways in which they have enhanced each other's businesses.

But looking at what has happened of late to the prices of some of the most luminous tech stocks - Amazon, Twitter, Facebook, Alibaba - it is apparent that Wall Street is not buying Silicon Valley's story (taking what is an admittedly expansive view of the geography). The problem is really quite simple but the solution may prove to be less so.

Wall Street, that avatar of traditional blue-blood careerism, now measures time in nano-seconds. The primary argument is about who can get access to the most market-moving information the fastest - and anticipatory data is the thing. 'Ownership,' such as it is, can be measured in miliseconds and investing for the long term? That's for suckers. No one expects to be around for that period of time.

Tech, meanwhile, for all of its crowing about change and disruption, is investing to grow their businesses precisely for that long term. They want to build the franchise and they could care less about the short term money changers in the temples of finance. .

The result is that Wall Street thinks tech has its priorities wrong and tech thinks Wall Street doesnt have any priorities because those who inhabit it are too focused on grabbing whatever they can this second.

It's going to be amusing to watch this. The tech guys disdain the Streeters and the guys on the Street think the techies are naive and immature. This could end badly for all, given how interdependent they have become - - or they could just continue to ignore each other, which might be the best solution for everyone involved. Stay tuned. JL

Howard Gold comments in Marketwatch:

Customers first, empire-building second, and investors just have to live with it.
Earnings season is about done, and more than 60% of the companies in the S&P 500 index have beaten Wall Street’s estimates, according to MarketGrader.com.
But as the S&P 500, the Dow Jones Industrial Average DJIA, +0.40%  and even the battered small-cap Russell 2000 RUT, +0.41%  recovered lost ground, some of the fastest growing, highest-flying stocks of all, the ones that make the headlines and get far too much attention from investors, suffered big losses. Netflix’s NFLX, +0.03% $1-a-month price increase prompted subscriber growth to fall below the company’s expectations, and an announced competing service from Time Warner’s HBO, caused Netflix  stock to fall 19% in its worst trading day in two years.Amazon.com AMZN, +0.01%   announced a quarterly loss much bigger than Wall Street had projected, because of heavy “investments” in its business, and the company said it might even lose money in the fourth quarter. The stock dropped  8.3% in one day and remains 25% below its January all-time high.
Facebook’s FB, +0.25%  shares plunged 6.1% on trading volume of over 100 million shares as the company warned costs would rise sharply and revenue growth would slow for the rest of 2014.
Twitter TWTR, -0.07%  said earnings met analysts’ expectations and revenue growth was strong, but fewer new users joined than in either the first or second quarter. Its stock fell almost 10% that day.
Some stocks have bucked the trend. On Monday, newly public Chinese ecommerce giant Alibaba Group BABA, +0.09%   reported revenues rose 54% in the quarter, and its shares topped $100 for the first time. Ultra-trendy Tesla Motors TSLA, +0.05%  , whose founder and CEO Elon Musk declared in September, “I think our stock price is kind of high right now,” reports earnings after Wednesday’s close.
Many of these are fine companies with solid businesses. Facebook has a great franchise, although founder and CEO Mark Zuckerberg has a habit of making billion-dollar impulse purchases.
Netflix now has more subscribers than HBO and a depth of content the pay-cable service can’t match. (How many times can you watch old episodes of The Sopranos and Game of Thrones anyway?)
If Twitter could stabilize its management team — it has had four product chiefs in recent years — and crack the code on attracting and retaining users, it could make good money, too.
As for Amazon, its massive competitive advantage could make it wildly profitable if Jeff Bezos ever set his mind to it. But why should he? He’s worth $28 billion and Wall Street has given Amazon a free pass since its 1997 public offering. Customers came first, empire-building second, and investors would just have to live with it. Until recently, they’ve been rewarded for that, but Wall Street may finally be saying, “show me the money.”
That’s also a problem with Facebook, Alibaba, and Google GOOG, +0.02%  , which all have said that shareholders play second fiddle. That means big gains can be tempered by huge price swings of the kind we saw recently and in the spring.
Investing in hot stocks, which unfortunately is still too many people’s definition of investing, is exciting, with drama every quarter and high-profile CEOs who could be characters on HBO’s Silicon Valley or Netflix’s House of Cards.

If you want entertainment, log onto to Netflix and rent a movie.