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

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

#111

Post by Zanni »

shuckles wrote: post #43
ethbr0 wrote: post #12

I said this in another thread, and I think it's apt here. If you have high growth, you can lose a lot of money and still have a good story. If you make some money, but don't have high growth, then you can't tell nearly as compelling of a story. Effectively, investors are assuming eventual profitability is inevitable , and measuring growth. The 90s showed that's fair... sometimes. But definitely lets pathological corp…

I’m not sure it’s about growth. Based on YCharts, it seems like Tesla’s revenue growth stalled after Sep 2018. https://ycharts.com/companies/TSLA/revenues

It's hard to see in that chart because of the big peak in the 4th quarter of 2018, but year over year growth per quarter is generally improving. The annual revenue chart shows the trend more clearly: https://ycharts.com/companies/TSLA/revenues_annual

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

#112

Post by bumby »

trixie_ wrote: post #90

Everyone thinks the stock market is crazy. The government is crazy - printing trillions of dollars this year, plans to print trillions more. The currency is will be devalued, inflation will happen. Investors see that and are getting out of cash and into stocks/crypto/property. So is the market really up, or is it just the outlook on the dollar is down?

I'm not sure the recent evidence bears out this point. If you look at the strength of the dollar, it's actually UP since the ultra-low interest rates that started after the financial crises. Rampant inflation hasn't happened either.

I'm not smart enough to know if this is just a looming bow-wave or that the previous assumptions don't hold.

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

#113

Post by sequoia »

vasco wrote: post #89
tornato7 wrote: post #81

Earlier quoted context omitted.

Here's a thought experiment about a theoretical company that can obtain incredible valuation. You start out with some money from friends and family, and you use this money to sell $100 bills for $50. Lots of takers. Soon enough, you go to a VC and show them your revenue stream, and tell them with more capital you can make the margins much better. They hand you a few million, and you start selling more $100 bills for…

You're obviously mocking this whole thing but the fact is that if you can get away with it, you can use that valuation to acquire actual smaller companies and talent and if you're running an online business and acquire a lot of customers (even if selling $100 bills for $95) you'll have huge distribution that you can then sell whatever you come up with next. Or as they use to say, we lose money on each unit but we'll…

> Or as they use to say, we lose money on each unit but we'll make it up in volume.

I believe this is a joke, no? I.e. you can't lose money on each unit and "make it up in volume."

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

#114

Post by lotsofpulp »

sequoia wrote: post #113
vasco wrote: post #89

Earlier quoted context omitted.

You're obviously mocking this whole thing but the fact is that if you can get away with it, you can use that valuation to acquire actual smaller companies and talent and if you're running an online business and acquire a lot of customers (even if selling $100 bills for $95) you'll have huge distribution that you can then sell whatever you come up with next. Or as they use to say, we lose money on each unit but we'll…

> Or as they use to say, we lose money on each unit but we'll make it up in volume. I believe this is a joke, no? I.e. you can't lose money on each unit and "make it up in volume."

It's a joke, because the strategy is to undercut or buyout the competition to survive long enough to be the last one standing.

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

#115

Post by LatteLazy »

This story comes up at least every week, plus more often if there is a stock crash, a big or techy IPO, the fed sneezes, or basically anything happens.

The reasons are always the same:

* the fed is printing money

* you buy FUTURE cashflow/price not current ones

* "profit" is taxed, so no company makes it if it can avoid it. That doesn't make their revenue is less than a expenses though (see also using share buy backs to avoid multiple levels of taxation).

* its often better for companies to spend excess cash than to hand it over (and thus let the government take 20 to 60% of it)

* idiots like buying shiney things and that includes shares sometimes

* the market can remain wrong longer than you can afford to be right (see for instance the last 20 plus years)

* if something has dropped 50% then gone up 20%, you'll hear that it's up 20%! In a pandemic/financial crisis/recession/whatever. Not that it's actually down 40% (that's right, 40% not 30%, that's how percentages work).

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

#116

Post by ludocode »

tornato7 wrote: post #81
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…

Here's a thought experiment about a theoretical company that can obtain incredible valuation. You start out with some money from friends and family, and you use this money to sell $100 bills for $50. Lots of takers. Soon enough, you go to a VC and show them your revenue stream, and tell them with more capital you can make the margins much better. They hand you a few million, and you start selling more $100 bills for…

This article from two years ago describes the "75 cent dollar store" as an analogy for MoviePass which is basically the same idea:

https://www.nytimes.com/2018/05/16/technology/moviepass-econ...

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

#117

Post by NoOneNew »

tornato7 wrote: post #81
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…

Here's a thought experiment about a theoretical company that can obtain incredible valuation. You start out with some money from friends and family, and you use this money to sell $100 bills for $50. Lots of takers. Soon enough, you go to a VC and show them your revenue stream, and tell them with more capital you can make the margins much better. They hand you a few million, and you start selling more $100 bills for…

Dude, that's a ponzi scheme with a few extra steps...

...

Ah shit...

Jokes aside, this is also why there are so many "haters" for such companies. A lot are the ones pointing this out since it's clear as day. But hey, people like their high horse. They trade out your classical deity religions for mortal idol cults and act enlightened. Its creepy how tech these days are just cults.

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

#118

Post by jackcosgrove »

toby wrote: post #62
snarf21 wrote: post #29

It is very simple. There are two things happening here. One: the Fed has invested trillions buying everything under the sun (not just t-bills) to prop up the markets and make it look the economy is fine. Two: interest rates are being held artificially low by the Fed and have been for a while. So people are desperate for returns and the only place to get it is equities. It is a pyramid scheme and must pop someday. Rea…

You're correct, but I think the "mystery" here is why a basket of unprofitable companies is outperforming broader indices.

They're anticipating a greater fool comes along. Foolish retail investors invest in hype.

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

#119

Post by Causality1 »

Because the stock market is only secondarily connected to reality. It's primary function is as a mood ring for the collective mass of wealthy people. Wealthy people get a fetish for something and stocks go up. Right now they have a fetish for companies that lose five times their revenue while growing 500 percent a year.

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

#120

Post by ianai »

LatteLazy wrote: post #115

This story comes up at least every week, plus more often if there is a stock crash, a big or techy IPO, the fed sneezes, or basically anything happens. The reasons are always the same: * the fed is printing money * you buy FUTURE cashflow/price not current ones * "profit" is taxed, so no company makes it if it can avoid it. That doesn't make their revenue is less than a expenses though (see also using share buy backs…

Wonder what the USG including the Fed do after the election. Could get very dark fast.
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