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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

#141

Post by nostrademons »

irq11 wrote: post #96
ChuckMcM wrote: post #89

Earlier quoted context omitted.

An interesting brick and mortar example in the Bay Area was Fry's electronics. When they started, they grossly undercut all of the electronics brick and mortar stores and priced more like the distributors did rather than the stores. As a result their business grew quickly and the other stores were unable to compete and went out of business. Then with the market to themselves they raised their prices to increase their…

Agreed, but phrasing it in the “here’s what changed that most people don’t understand” language that VCs love: “in the age of cheap money, scale is not a defensive moat” When Fry’s was founded, it was so prohibitively difficult to get the funding to scale to their size, that competition was thwarted by lack of investment. Now? The trick is public knowledge; the funds are cheaply available to anyone able to scale a co…

The trick still works (and is quite common), because investors apply that reasoning to the upstart, not the established business. If you go to a bunch of VCs and pitch them "Comcast is making a ton of money because they own a monopoly and steadily raise prices. Their margin is our opportunity. Give us $20B so we can build out a national 1G fiber network and take all their customers", their response will be "What's to stop Comcast from dropping their prices and increasing their bandwidth once you've spent all this money building your competing market?"

Knowing that you're the attacker and they're the defender and that most consumer markets favor the incumbent, the investor won't hand over their capital unless you can show that you've already started to take their market. And then once you have shown that you're taking a fat incumbent's market, they're happy to fork over tons because they know that every other investor's reasoning will be the same, and nobody will want to attack an incumbent that can just drop prices to fend off a challenger.

BTW, Google decided to buck the outside investors in exactly this example, funding GFiber internally. It played out basically exactly as the scenario above - the incumbents rolled out gigabit cable/fiber at competitive prices in precisely those markets GFiber was threatening, preventing them from making serious inroads. There were a bunch of other factors (like regulatory issues and the difficulty of scaling last-mile telecom), but after recent examples like that investors would rather find virgin territory rather than fight price wars in large existing markets.

(IMHO, this is one thing wrong with American capitalism today, as our system relies on cutthroat competition and aggressive risk-taking behavior by investors to get good deals to consumers.)

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

#142

Post by K0SM0S »

esotericn wrote: post #139
K0SM0S wrote: post #135

Earlier quoted context omitted.

I know retail stores in France cannot legally sell anything at a loss, except during government-decided 'sales' periods (twice a year, usually in January then June) which are mostly aimed at emptying stocks for the new 'season' (as if that mattered in the 21st century when most stores are a on a bi-monthly product cycle, but hey, that's the inertia of law/gov). Not sure about businesses in general but I seem to recal…

Wow. So if a merchant buys in too much stock and can't offload it - they're literally banned from selling it below cost? I assume they can still sell it on a secondary market (just not direct to customers)? Or do they actually have to eat it entirely and just like, burn the stock or something?

I'm not an expert in accounting but I assume there's a legit way to write it off as some exceptional loss and offload it, maybe even to customers; what's however certain is that if you get audited by fiscal authorities, you better be able to prove it's not fraud. (and yes, it'll be subjective, ultimately a judge's ruling I guess)

But don't quote me on that part, it's been a long time since I've worked in retail (10 years). I just know that as a brand store (Esprit de Corp) we would simply send unsold items back to the mother ship and they'd deal with it. I think the maximum allowed sale discount is around 20% outside of the bi-yearly governement-decided national sales (called "les Soldes" in French, and a high time for shopping amateurs, mostly women historically).

This all feels so 19th century / communist, I'm appalled just sharing it. But it was true as of 2008.

But hey, we get e.g. Black Friday online like everyone else, and Amazon does their Prime Days too, so... dunno what's up with that. I just know street retail is dying big time here, more than in most comparable European cities in my anecdotal experience.

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

#143

Post by ahartmetz »

treis wrote: post #131
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 VC subsidies for some of these companies are so high that they are basically selling $2 for $1 in some cases (WeWork was basically losing nearly $1 for every $1 of revenue!) Effectively none of these companies lose money on a marginal basis. In other words, an additional customer making an additional transaction helps their bottom line. There's always two major questions. (1) Can the company grow to where their…

Reportedly Uber did use money on a marginal basis and maybe still does. That's a big and important one.

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

#144

Post by goatinaboat »

SpicyLemonZest wrote: post #85
GhettoMaestro wrote: post #75

Earlier quoted context omitted.

I never understood the "grow fast at any cost" mentality. If you can't make your shit break-even or near-profitable at small scale, there is a big chance you will not be able to make it work at large scale.

Everyone agrees with that statement. The hard question is what "can't" means. Companies with a grow fast mentality always insist they could break even, and often present financial metrics indicating they do break even with the proper adjustments for purely growth-related costs. There's no obvious rule for how much you should trust a company's adjustments.

present financial metrics indicating they do break even with the proper adjustments for purely growth-related costs

Such as “community-adjusted EBITDA”

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

#145

Post by bydl0coder »

hunterloftis wrote: post #99
o-__-o wrote: post #95

Earlier quoted context omitted.

Nothing sexy about monitoring. You or I could build our own overnight. Twilio is the true leverage and why they command a much higher P/E multiple

I agree with you but I’d phrase it differently. Perhaps that neither monitoring nor sms is “sexy,” but that you could reasonably hack together a monitoring MVP over a weekend but not a telephony MVP. There’s a natural barrier from the underlying problem domain.

Of course you can put together an SMS sending service over the weekend. It just won't scale to the whole world and will have limited throughput.

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

#146

Post by bydl0coder »

jjeaff wrote: post #92
SpicyLemonZest wrote: post #62

Earlier quoted context omitted.

I think calling Juicero a shitty idea is too strong. It didn't end up working, and probably it was knowable in advance that it wouldn't, but the difference between early-stage Juicero and early-stage Keurig is smaller than most people gave it credit for. There's a strong and robust market (at least in the SF Bay Area) for weird expensive juices.

I agree, fresh juice on demand is a good idea (besides the fact that the amount of sugar is usually terrible for you). But they had to have found out very early on with Juicero that squeezing the packets by hand basically produced as much juice as their expensive machine.

Well, even if you can do something by hand, there's a market for a gadget that will do it more conveniently. There is a market for food processors and rice cookers. I don't think Juicero is a good example of "stupid money" craze. Theranos is.

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

#148

Post by K0SM0S »

esotericn wrote: post #139
K0SM0S wrote: post #135

Earlier quoted context omitted.

I know retail stores in France cannot legally sell anything at a loss, except during government-decided 'sales' periods (twice a year, usually in January then June) which are mostly aimed at emptying stocks for the new 'season' (as if that mattered in the 21st century when most stores are a on a bi-monthly product cycle, but hey, that's the inertia of law/gov). Not sure about businesses in general but I seem to recal…

Wow. So if a merchant buys in too much stock and can't offload it - they're literally banned from selling it below cost? I assume they can still sell it on a secondary market (just not direct to customers)? Or do they actually have to eat it entirely and just like, burn the stock or something?

Edit after the fact: called my ex-boss, she kindly reminded me that as a company we would store goods for months and sell them during "les Soldes", so yeah you get twice a year a 6-weeks period to offload your stock.

Sorry for the confusion. Note that this only applies to non-perishable goods, food for instance is treated differently. Each sector in France falls under different regulation, it's a mess, very hard to navigate.

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

#149

Post by krzyzanowskim »

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…

> old companies (banks) that sell $2 for $2.15 (a loan).

banks sell $0.15 for $2.15, nobody can beat this business model. Bank only need $0.15 to give you a $2 loan and ask for $2.15 in return.

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

#150

Post by chii »

Retric wrote: post #126
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).

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.

youtube's revenue remains undisclosed in google's financial statements (see https://www.nytimes.com/2019/07/24/technology/youtube-financ...). The $15-25 billion is merely a guess.

The fact that google chose not to reveal youtube's financials is stark evidence that it's financials aren't great (otherwise, disclosing it should lead to better stock prices for google!).

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