Market to Companies: No Tolerance for Spending

NEW YORK (TheStreet) - Remember the days when Amazon (AMZN) continued to soar on increased spending with no regard to EPS? That was essentially the full story in the run up to $400. However, the recent quarters plagued by continued investments in future growth have not been applauded by the market, as the stock has fallen over $100 points to below $300/share. Even Google (GOOG) which is known for its earnings power has been punished of late, also falling a hundo from $600 to $500 per share. In its latest quarter, while click growth was up 26% (solid) and CPC pricing decline (-9%) moderated, expenses weighed on sentiments.

These are the "blue chip" examples. Let's look at today's examples for a more extreme example of the blood bath. If you read through the conference call and analysts notes on network security solutions name FireEye (FEYE) you would be shocked that the stock is down 25% today. But here is a company that is not profitable and that has a ton of stock coming available. The company IPO'd back in September 2013 at $40. But ever since its 14mm secondary in March at $82, the stock has been cut in half. The upcoming 82mm shares unlocking on May 21st don't help, and the stock is trading at $31. It doesn't matter that there is a "large TAM" (known as Total Adressable Market") or that its a first mover. Or that billings grew by 131%. this is a company trading at 10x EV/Sales (read: not cheap), that is not profitable, spending a ton and having a lot of stock come public.

Facebook (FB) is also being punished in this environment.

Also look at Groupon (GRPN) and AOL (AOL) today, these are two companies that at first blush look like they reported solid earnings. But spending concerns are worrisome.

Twitter (TWTR) is another example of this. The company focused on the conference call on mobile opportunity, engagement of retweets, and opportunity. But the monthly active user growth of 25% failed to impress. And, no the company is still not profitable. Oh, and a lofty valuation of 16x EV/Revenue. Neither of this was enough to avoid the recent bloodshed that has stemmed from the lock-up expiration of over 450mm shares, even if some insiders were holding onto the deal. Remember, insiders have an extremely low costs basis with these IPOs.

Meanwhile, look at Apple (AAPL) which had suffered since September 2012 as it transitioned from a growth to value play. Now, Apple is surging as it "represents value" at last via shareholder return and new products. Not to mention the surge in old tech names like Microsoft (MSFT), Oracle (ORCL), and Hewlett Packard (HPQ).

The bottom line: The combination of high valuation, no or low profitability and high spending are no longer getting a free pass in this market. Beware of the rotation. It is powerful and will give you whiplash if you dig in your heels and focus on the fundamentals.

--Written by Nicole Urken in New York.

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