DD Digest: Absurd Numbers & Embarrassing Returns

A quick fix of the latest financial happenings.

Jun 24

Good morning, investors!

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Without further ado…

One Pretty Absurd Graph of Scary-High Home Prices

Two years ago, we were all forced indoors for an indeterminate amount of time.

One year ago, people realized they needed more space and started buying homes at a feverish pace.

This year, average home sales prices eclipsed $500,000 for the first time ever. Couple that with rising interest rates, and you have what appears to be an untenable position for the housing market.

For fun, let’s look at what it would take for the typical American to buy a house right now. Assuming averages across the board, here are our assumptions:

House price: $507,800 — the average according to the Fed at the end of Q1
Down payment: $66,014 — based on the median down payment of 13%
Mortgage: $441,786 — which we will assume is a 30-year fixed
Interest rate: 5.81% — the weekly average according to Freddie Mac

And the financial toll excluding taxes, fees, insurance, maintenance, and so on:

Monthly payment: $2,595
Monthly gross income: $4,120

That’s 63% of the typical individual’s GROSS income. Yikes.

Two Tech Stocks That Have Yielded Embarrassing Returns

If you invested $10,000 in Facebook five years ago and held your shares, you’d have a whopping…

$10,515, good for a 5.2% return.

What’s sadder, that figure was only 3.2% entering today.

Obviously, the stock market is off to a historically rough start in 2022, and Facebook has faced its fair share of issues over the last six months, but just look at their five-year growth.

Revenue: up 190%. Net income: up 147%.

Would you have guessed this level of operating growth would yield practically nothing for long-term shareholders?

Dropbox, the cloud storage software that’s handy when you need to share oversized files, has experienced a similar level of stagnation. In March 2018, Dropbox priced its IPO at $21 per share. Yesterday, it closed at $21.84.

Let’s look at how the company has grown:

Cloud is a competitive industry, but you’d think a company that almost doubled its revenue, steadily improved margins, and finally made a profit would generate better than a 4% return.

Three Eye-Opening Tweets

As always, we close with three eye-opening tweets:

The missed opportunities with streaming-only titles.

I love this visual comparison and thread by Wasteland Capital. By the end of my investment banking days, my portfolio consisted primarily of film and TV companies, and I always thought Netflix did itself a disservice by limiting its titles to its own platform versus releasing them in theaters initially.

Movie theater attendance and box office revenue are way down from pre-pandemic days, but it’s still a multi-billion dollar industry. Some believe this could finally be the year Netflix relents and inks an agreement with film exhibitors.