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

theatlantic.com

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

#81

Post by PretzelFisch »

hurrdurr2 wrote: post #55
easytiger wrote: post #12

Earlier quoted context omitted.

To be more specific it's a real estate company, that started out with a low asset ownership position. Then it got into the asset game leveraging their revenue, but mostly leveraging some meaningless sociological/technological gibberish to skewer an investor. I think this speaks to the state of the kind of people making decisions about things they don't even try to understand.

This is what amazes me; that there are so many supposedly intelligent individuals throwing money at shitty ideas. Google investing in Juicero comes to mind. It's like any semblance of due diligence is just an afterthought.

Kind of have to conclude intelligence for one area does not mean someone is not a mark when it comes to a different area.

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

#82

Post by tempsy »

rubicon33 wrote: post #66
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…

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.

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

#83

Post by starfallg »

jeremydeanlakey wrote: post #48

One perspective that I gained much later than I should have: Suppose you have a small software company, Reinvest Software with big margins and lots of opportunities to expand. You can take home that profit and pay taxes. Or you can invest in growth. That investment in growth is an investment in intangible assets with insanely good tax treatment. But it looks bad on the financial statements. Suppose an investor, Smart…

This is exactly what this article (that appeared here last month) was talking about -

https://mattstoller.substack.com/p/wework-and-counterfeit-ca...

https://news.ycombinator.com/item?id=21071890

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

#84

Post by puranjay »

pembrook wrote: post #80
puranjay wrote: post #7

It's an incredible mix of hubris (on the startup's part) and delusion (on the investors part) to call some of these "tech companies". Like WeWork. It's a real estate company that should be valued like a real estate company. But somehow everyone concurred that it is, indeed, a tech company. How or why, no one bothered to ask.

Everyone? Virtually nobody thinks or thought WeWork was a high margin software company. Your comment is a narrative that has been regurgitated over and over again, yet who are these magical people who think WeWork is akin to Facebook? Look at any article written about WeWork in the last 4 years. Every single article will regurgitate the Real Estate company pretending to be a tech company thing.

The people that matter - the investors - valued WeWork like a high margin software company. Then WeWork itself tried to value itself like a high margin software company in its S-1.

Because WeWork's margins and revenue are similar to another very similar company - Regus - yet their valuation is more than 10x

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

#85

Post by SpicyLemonZest »

GhettoMaestro wrote: post #75
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…

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.

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

#86

Post by pembrook »

puranjay wrote: post #84
pembrook wrote: post #80

Earlier quoted context omitted.

Everyone? Virtually nobody thinks or thought WeWork was a high margin software company. Your comment is a narrative that has been regurgitated over and over again, yet who are these magical people who think WeWork is akin to Facebook? Look at any article written about WeWork in the last 4 years. Every single article will regurgitate the Real Estate company pretending to be a tech company thing.

The people that matter - the investors - valued WeWork like a high margin software company. Then WeWork itself tried to value itself like a high margin software company in its S-1. Because WeWork's margins and revenue are similar to another very similar company - Regus - yet their valuation is more than 10x

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 company in growth stage. Take Shake Shack for example. Their P/E ratio is 170. Chipotle had a p/e of 400 a few years ago.

Nobody thinks Shake Shack and Chipotle are tech companies. These valuations reflect the prospects of growth—-not misplaced beliefs about restaurants being tech companies.

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

#87

Post by AlexCoventry »

NotSammyHagar wrote: post #78
empath75 wrote: post #68

Earlier quoted context omitted.

I don’t think there’s fundamentally anything wrong with slack though. Investors just don’t understand it, I don’t think. I’ve read so many articles about how Microsoft is going to crush it with teams and it’s so obvious to anyone who has had to work with both of them that they simply are not competitors — really the only thing close to it is Discord and it’s not going after the enterprise market.

The barrier to entry to compete with slack is fairly low. And Discord can just decide to start focusing on enterprises. Microsoft is just one company with the leading office suite that happens to be really kludgy. Slack has its pluses and minuses. So just because slack works great and is fun to use, and has lots of companies giving them money, doesn't mean they are worth their huge valuation. They aren't getting enou…

The only way slack's valuation makes sense to me is that it could be used as a covert business-intelligence tool. I tend to think of github the same way.

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

#88

Post by daxfohl »

wbronitsky wrote: post #60
rossdavidh wrote: post #37

Earlier quoted context omitted.

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…

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".

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

#89

Post by ChuckMcM »

GhettoMaestro wrote: post #75
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…

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.

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 margins. They also used access to adjacent markets (TVs, PCs, Radios, Appliances, Office Supplies) to supplement their margin which specialty retailers like Quement or Jade did not.

Their strategy was essentially to lose money on something that brought in customers, and to make extra money on other things once the customer had been acquired and was in the store.

The "grow fast at any cost" mentality is predicated on the understanding that the most difficult step of any new business is to change consumer behavior such that they go to the new business first. Once they have established that pattern they can then manipulate the pricing of their offerings in order to achieve the highest sustainable level of margin before they lose customers.

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