This article first appeared in Capital, The Edge Malaysia Weekly, on December 21 - 27, 2015.    

WHILE the broader US equities markets traded sideways for most of the year, a handful of tech companies clocked handsome share price gains.

Facebook Inc shares are rising alongside growing revenue as the company finds new ways to monetise the popular social network. At its close of US$106.79 per share on Dec 16, Facebook’s share price had gained about 36.88% this year, giving it a whopping US$302 billion in market capitalisation.

Facebook has plenty of catching up to do earnings-wise, though, as its stock is trading at over 107 times historical earnings. Looking ahead, its price-earnings ratio (PER) is expected to narrow to about 50 times next year and its valuations are not the most lofty in the market.

Take, for instance, Amazon.Com Inc and Netflix Inc.

Amazon’s shares gained 117.74% during the year to close at US$675.77 on Dec 16. That more than doubled its market capitalisation to US$361.78 billion this year, overtaking Facebook. Just like Facebook, however, there are huge expectations for Amazon’s earnings growth. The e-commerce retailer is now valued at over 979 times earnings but the gap is expected to narrow as it begins to realise more revenue from its web-based retail business. The group’s estimated forward PER is 367 times.

Meanwhile, Netflix rose 151.3% in the same period to US$122.64 per share (adjusted for a share split), giving it a market capitalisation of US$52.41 billion. The internet subscription service for TV shows and movies saw its subscribers grow to 69.2 million in the third quarter this year, up 30.4% from a year ago, as it ramps up its international expansion.

Still, earnings growth has been slow in catching up, with Netflix trading at a lofty PER of 325 times.

Interestingly, it was only a lukewarm year for the largest tech stock in the world — Apple Inc. The giant, which has a market capitalisation of US$620.8 billion, did see strong gains in its share price early in the year, reaching an all-time high of US$131.38 per share in May, but lost the gains in the third quarter. Despite the launch of its first new product line in five years — the Apple iWatch — as well as the latest iPhone 6s, Apple’s shares closed 3.5% higher year to date at US$111.34 apiece on Dec 16. This values Apple at a much lower historical PER of only 12.09 times, even as concerns over potential declines in future iPhone sales weighed on sentiment.

The share price of its chief rival, Microsoft Corp, fared better, rising 24.13% in the same period to close at US$56.13 in May. This values the tech giant at 22.3 times earnings with a market capitalisation of US$448.36 billion. Notably, Microsoft’s stocks were not driven by growth, but by an internal restructuring that began last year, culminating in more than 7,800 job cuts and US$7.8 billion in write-downs for the acquisition of mobile phone maker Nokia.

Meanwhile, Alphabet Inc, the holding company of the world’s most popular search engine, Google Inc, saw its share price rise 44.41% during the year to close at US$758.09 apiece on Dec 16. This values the company at over US$527.2 billion in market capitalisation, and almost 36.53 times PER. Notably, the 6.8% stake in Uber it bought in 2013 is worth an estimated US$3.4 billion today, ahead of a listing of the car-sharing service.

Of course, the tech stocks story would not be complete without a mention of Alibaba Group Holdings Ltd, whose latest high-profile acquisition is Hong Kong’s leading English language daily South China Morning Post and other media assets of SCMP Group Ltd for US$266 million. The China-based e-commerce company, which is similar to Amazon, saw its share price fall 18.58% this year to US$84.63 apiece on the back of weakening sentiment at home. Still, the share price is substantially higher than the 52-week low of US$57.20 in September, after the sell-off of Chinese stocks. And relative to Amazon, Alibaba’s valuations are closer to earth at 68.7 times historical earnings and 32.5 times forward PER.

Looking ahead, the worry is if investors’ expectations are too high for earnings to ever catch up. That sounds painfully like the music that was playing during the first dot-com boom and we all know how that ended.

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