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Why are so many unprofitable companies the best performing stocks this year?

awealthofcommonsense.com

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Re: Why are so many unprofitable companies the best performing stocks this year?

#31

Post by exdsq »

dmarlow wrote: post #27
sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

> Their investor, the Mark Cuban caricature, Russ Hanneman I didn't know that's what they had intended. I never once thought that's what they were going for.

Yeah I thought it was just a bro-VC type person rather than anyone specific

Re: Why are so many unprofitable companies the best performing stocks this year?

#32

Post by KirinDave »

So if I'm reading this right, the author feels that the reason these companies are so valuable is because it destroys the free market one customer at a time, selling lock ins that would crush a normal business to escape, and that will deliver long term value as a result of said destruction.

I guess that makes sense.

Re: Why are so many unprofitable companies the best performing stocks this year?

#33

Post by sharkweek »

dmarlow wrote: post #27
sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

> Their investor, the Mark Cuban caricature, Russ Hanneman I didn't know that's what they had intended. I never once thought that's what they were going for.

I'm not sure if it was ever explicitly stated by the writers, but IIRC, Russ put "radio on the internet," while Mark Cuban first hit it big with broadcast.com.

I believe they based him off of Mark's big personality too, mocking things like "three commas" and investing in a bunch of stinkers over the last 20 years.

Re: Why are so many unprofitable companies the best performing stocks this year?

#34

Post by doggosphere »

dmarlow wrote: post #27
sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

> Their investor, the Mark Cuban caricature, Russ Hanneman I didn't know that's what they had intended. I never once thought that's what they were going for.

Russ also made his money putting radio on the internet.

Re: Why are so many unprofitable companies the best performing stocks this year?

#35

Post by elefanten »

dmarlow wrote: post #27
sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

> Their investor, the Mark Cuban caricature, Russ Hanneman I didn't know that's what they had intended. I never once thought that's what they were going for.

1. The character made money selling "Radio on the Internet" -- Mark Cuban sold Broadcast.com to Yahoo for $5.7B in 1999.

2. The character recounts popping a boner when he saw his net worth cross 1B. There's some old Cuban video about watching his stock price while sitting in his boxers.

3. There's a bit in the show about the character showing both rows of teeth when he smiles. Cuban smiles like that.

Re: Why are so many unprofitable companies the best performing stocks this year?

#36

Post by omarhaneef »

The article quotes Ben Thompson (yes, from Stratechery) to explain why unprofitable stocks are performing well. It is basically what you might expect (they are re-investing profits in growth).

For those who wonder how you tell the good unprofitable companies from the bad unprofitable companies: typically you look at gross margins -- or unit economics. This is a little complicated to estimate for any sticky subscription company -- like a SaaS company -- you need to estimate the LTV and discount down to get the true gross margins.

Thompson's point is that a sticky subscription company can have enormous LTV.

Re: Why are so many unprofitable companies the best performing stocks this year?

#37

Post by manigandham »

The stock market is not rational, and it never has been, and 2020 is completely unprecedented with many overriding factors.

Interest rates have fallen so the equities market is the only place for returns. Meanwhile the Fed has promised to backstop and keep spending for years if necessary. Add in record amounts of trading from retail investors to institutional funds riding the volatility craze, especially the options market which has outpaced the underlying stock in for several companies, and there's an incredible amount of support for this bubble.

Re: Why are so many unprofitable companies the best performing stocks this year?

#38

Post by glennpratt »

dmarlow wrote: post #27
sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

> Their investor, the Mark Cuban caricature, Russ Hanneman I didn't know that's what they had intended. I never once thought that's what they were going for.

I scratched my head too, but I forgot about this detail.

> Russ Hanneman is a multi-billionaire who claims to have "put radio on the internet".

Re: Why are so many unprofitable companies the best performing stocks this year?

#39

Post by sdenton4 »

KirinDave wrote: post #32

So if I'm reading this right, the author feels that the reason these companies are so valuable is because it destroys the free market one customer at a time, selling lock ins that would crush a normal business to escape, and that will deliver long term value as a result of said destruction. I guess that makes sense.

See, the market is itself a commons, which we are obligated to destroy in our search for profit and pure, unadulterated freedom. (but mostly profit.)

Re: Why are so many unprofitable companies the best performing stocks this year?

#40

Post by JMTQp8lwXL »

sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

Anything with no record has the potential to be the next FANG. It's far clearer for a company that's existed for awhile, what its potential might be. And that insane growth will only be found early on, typically during a time when the company isn't profitable.
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