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Today’s correction isn’t much like the dot-com bubble

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Re: Today’s correction isn’t much like the dot-com bubble

#121

Post by enkid »

TheSpiceIsLife wrote: post #102
code4tee wrote: post #44

There’s another often unwritten element here around companies basing their valuation on false markets. For example, if I sell $2 for $1 that’s a false market. Of course I can grow like crazy and gobble up lots of customers. I could even “disrupt” existing players like those stodgy old companies (banks) that sell $2 for $2.15 (a loan). The VC subsidies for some of these companies are so high that they are basically se…

The whole point of fast growing startups with ever-increasing valuations is to enable early investors to cash out at huge multiples. Everything else is a side show.

Sounds like a Ponzi scheme

Re: Today’s correction isn’t much like the dot-com bubble

#123

Post by 9nGQluzmnq3M »

rossdavidh wrote: post #37
wbronitsky wrote: post #34

Earlier quoted context omitted.

I don’t understand this argument at all; it seems to be only buzzwords. What is the relation of the gig economy to a cloud hosting service, other than most gig economy apps are built on cloud servers? Also, how does looking at the problem this way enlighten us?

I think the idea is that a cloud company is primarily renting hardware. Therefore, it doesn't scale like a software company; as its number of customers goes up, its number of employees and amount of capital equipment has to go up as well. This would mean it should not have a multiple like a pure-play software company, where the costs go up little if any as the number of customers goes up, because almost all of the so…

Renting hardware is how VPS companies (remember those?) made money. While that's a part of cloud company business, their real margins are in services, particularly proprietary software: for example, the same AWS t3.small that costs $0.0209/hr suddenly doubles in price to $0.041/hr when it's a db.t3.small running Aurora.

Re: Today’s correction isn’t much like the dot-com bubble

#124

Post by TheOtherHobbes »

jonas21 wrote: post #120
tolmasky wrote: post #116

Earlier quoted context omitted.

Are they bad at avoiding that though? Or are we greatly extrapolating from one VC in one high profile case: because that is the actual hilarious part of WeWork, it was basically entirely funded by just one VC that kept doing more rounds. Additionally, the nature of VC is that it is high risk: you're supposed to have 9 failures for every success. So just from an "amount" of companies perspective, they're always going…

And even WeWork isn't that bad. Each new location they open has large startup costs: they have to lease a large space, build it out, hire staff, do a lot of marketing -- only then can they start collecting rent from members, and it takes time to fill the space to capacity. There's no reason to believe that they wouldn't be profitable if they stopped growing so quickly (they opened 200 locations in 2018 alone).

WeWork was profitable - for Adam Neumann.

Using WeWork funding to buy property that he could then lease to WeWork was brilliant. So was selling the branding and IP back to the company. So was borrowing money against his share ahead of the IPO - although it's not obvious how that's going to work out long term.

Was WeWork ever a serious business? Was there ever a plausible path to consistent profitability? Or was it just a cover story?

Re: Today’s correction isn’t much like the dot-com bubble

#125

Post by PeterisP »

sharkjacobs wrote: post #117
chii wrote: post #113

Earlier quoted context omitted.

google derives much more value from youtube's viewership data than the profit in ads it makes imho. Youtube's profit model is only profitable at google scale - imagine the capital expenditure to build out such a large video platform (not very many other tech giants have been able to build video, and have it be free).

I always understood that the viewership data was valuable because it enabled Google to earn more money selling ads. What is the value of viewership data apart from advertising?

I read the parent post as asserting that the value of ads placed on youtube is not as large as the incremental value to non-youtube ads (which is a much, much bigger market) from better targeting enabled by youtube data.

I don't know if that's true - youtube ad revenue seems to be ~10% of total google ad revenue; so for that to be true youtube data would have to provide 10% revenue boost to existing ads over all the other (many!) data sources that google has, and I'm not certain if it's realistic.

Re: Today’s correction isn’t much like the dot-com bubble

#126

Post by Retric »

chii wrote: post #113
Retric wrote: post #103

Earlier quoted context omitted.

Facebook was a good example. They avoided excessive advertising in their growth phase, effectively spending potential profit for a huge user base. Critically, the profit was intangible as was the investment as the IRS does not care about money you never collected or the number of users you have only cash. YouTube is another, as far as we can tell it’s currently extremely profitable yet people looking at their financi…

google derives much more value from youtube's viewership data than the profit in ads it makes imho. Youtube's profit model is only profitable at google scale - imagine the capital expenditure to build out such a large video platform (not very many other tech giants have been able to build video, and have it be free).

Estimates for YouTube are on the order if $15-25 billion in annual revenue and a ~50% profit margin. With very solid revenue growth. The data is clearly worth real money, but I doubt the data alone is worth 5+ Billion on it’s own.

PS: People are watching on the order of 1 Billion hours per day of video so IMO those revenue numbers may be low as that’s 1$ of revenue per ~15 hours of video watched.

Re: Today’s correction isn’t much like the dot-com bubble

#127

Post by bsder »

Retric wrote: post #103
sfilipov wrote: post #61

Earlier quoted context omitted.

What are good examples of Reinvest Software? My guess would be Amazon, but what others?

Facebook was a good example. They avoided excessive advertising in their growth phase, effectively spending potential profit for a huge user base. Critically, the profit was intangible as was the investment as the IRS does not care about money you never collected or the number of users you have only cash. YouTube is another, as far as we can tell it’s currently extremely profitable yet people looking at their financi…

> YouTube is another, as far as we can tell it’s currently extremely profitable

Anecdotally, the fact that YouTube is flooding their channels with more and more advertisements would seem to indicate that they are NOT profitable at all.

I now loathe YouTube links and highly encourage people to try to put their video content anywhere else (even their own webpage--hosting is a lot cheaper now).

Re: Today’s correction isn’t much like the dot-com bubble

#128

Post by cannonedhamster »

tempsy wrote: post #82
rubicon33 wrote: post #66

Earlier quoted context omitted.

That's not an uncommon nor unheard of tactic in business. Fuel growth, and capture the market for your brand, by selling at a loss. The trick is always the transition to profitability. Generally, this comes through layoffs and maybe price increases.

If you look at the scooter companies they are now charging $.29/minute (vs I think $.15/min a year ago). If you rent it for an hour, that now costs more than $20 with tax. Not exactly cheap anymore.

That sounds like it's probably cheaper in the loan long run to buy a bicycle plus you don't look like an adult using a child's toy.

Re: Today’s correction isn’t much like the dot-com bubble

#129

Post by wbronitsky »

daxfohl wrote: post #88
wbronitsky wrote: post #60

Earlier quoted context omitted.

I assume you mean that these companies are in the business of renting hardware, not that they themselves rent the hardware they are using. I believe the virtualization they are offering allows the service to scale a bit more like software, but I do agree that these cloud providers don’t have 0 marginal cost. Either way, thank you for de-buzzwording the original argument. It makes much more sense in English

Sorry for all the buzzwords....It was 6 AM PST and coffee hadn't kicked in yet. Interestingly the de-buzzwording of the argument makes sense for the actual thing called "gig economy" too. It could just as well be called the "human rental business".

Hey it happens, no value judgements really; I do it myself all the time. The problem lies in my misunderstanding more than anything else.

“Human rental business” absolutely makes whatever economy that is sound much more like the reality these workers live in. We should use it more instead of the euphemisms we all use now.

Re: Today’s correction isn’t much like the dot-com bubble

#130

Post by pembrook »

throwaway3563 wrote: post #98
pembrook wrote: post #86

Earlier quoted context omitted.

WeWork and its investors did not try to value it like a high margin software company. WeWork was valued like a standard, overly optimistic growth company. This is another narrative invented by tech journalists who don’t understand how valuation works. Regus is a mature company with no plans for massive growth. Of course their Value (p/e of under 20 I believe) is going to reflect that. Meanwhile, look at any non-tech…

The latest Wework TV ads sell it as an “operating system” for workspaces, among much other showy language filled with business-transforming technology buzzwords. It definitely sounds like they’re marketing as some unique proprietary tech, and I wouldn’t be surprised at all if the aim was to justify their absurd valuation figures.

Except, every company in 2019 is marketing themselves as if they have some unique proprietary tech. I just saw an ad for Holiday inn that did this.

None of these things mean smart investors (or even customers) are being hoodwinked by this marketing nonsense however.

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