Riding the Wave of the Japanese Stock Market Bubble
How NTT Became the World’s Most Valuable Company
(Note: This is an excerpt from my upcoming book on the History of Financial Booms and Busts)
Nippon Telephone and Telegraph (NTT) began its life as Japan’s Government-owned monopoly.
NTT is a company with a long history of innovation. As early as 1970, NTT exhibited a video-telephone connecting Osaka with Tokyo and a wireless telephone at the Japan World Exhibition.
NTT first became a publicly traded company in 1987. It was a time when Japan's "bubble economy" was gathering force.
The flotation of NTT was a watershed event that gave legitimacy to owning shares by the Japanese public.
NTT attracted many first-time investors eager to get in on the rising market.
Their ranks consisted of frugal Japanese housewives who controlled the household purse strings.
The stock was oversubscribed by a 20-to-1 margin. A lottery decided which lucky Japanese investors could get in on the bonanza.
No gaijin (foreigners) were allowed to participate.
The initial share price was 1.197 million yen for the 1.95 million shares sold, or about $15.2 billion. Additional offerings boosted that number to $38 billion.
No one was willing to sell on the first day the shares were traded. Finally, the shares opened at 1.6 million yen on the second day- about $20,000.
Many investors could afford to buy only a single share at such prices.
Within a few weeks, NTT's share price soared to 3.18 million yen, valuing it at 200 times annual earnings.
Alas, even the New York Times dismissed this as an "Occidental" method of valuation.
NTT's market cap soared to more than 50 trillion yen, thus becoming the most valuable company in the world.
At this peak, NTT was more valuable than the combined value of the West German and Hong Kong stock markets.
Japanese brokers had led small investors to believe the government would not allow the share price to fall.
Sadly, it did work out that way.
Instead, NTT became a poster child for the excesses of the Japanese stock market,
NTT’s share price peaked in 1989, along with the rest of the nikkei. By August 1992, NTT fell to 85% below its peak.
Even then, it still boasted a price-earnings ratio over 50. That compared with an average of about 36 for all stocks in the Japanese market.
In 2022- 35 years after its floatation- NTT had a market capitalization of $95.6 billion. That was still about 60% below its peak valuation.
Today, NTT has a market cap of $110 Billion.
That makes it the world's 125th most valuable company by market capitalization.
As such, it is valued the same as the travel website Bookings.com.