3 ms·

Frankly I hate the modern way of doing business. "Operating 25% in the red is fine as long as we're growing 200% a year" and just keep doing that until your co

Frankly I hate the modern way of doing business. "Operating 25% in the red is fine as long as we're growing 200% a year" and just keep doing that until your company implodes and your investors have moved on to something else.

subjectHarold 7y ago
Unfortunately, there is a real lack of clear thinking about this. I will happily invest in a business that is making losses if the marginal ROI is strong. The market often gets these situations totally wrong. I hope this will continue but: businesses that are deploying a lot of capital even at very high rates can and often are loss-making. You can't just look at accounting profit, that tells you nothing. With Uber, there are two issues. First, they invested very heavily internationally (they are basically an EM stock). Second, they don't provide anywhere near enough financial info. But Lyft gets closer and their marginal ROI is clearly positive. Their fixed costs are garbage, Uber are taking unbelievable risks (reckless, imo) on EMs but the business model is definitely valid (I would say Lyft actually starts to look cheap in the $40-45 range).
Traster 7y ago
I think there are two issues operating here. The first issue is that there is absolutely a genuine business case where as long as your COGS is close to 0 then you literally can grow into profitability. That very clearly applies to Slack and other internet companies where you build the application and you're basically incurring only fixed costs. The second issue is that we have a number of companies that aren't that style of tech company that are wrongly valued like that. Companies like Uber, Tesla WeWork etc. All attempt to mask their traditional business with tech. I think we can make a pretty strong case that what we're seeing there is a bubble that will burst.

3 ms·

Frankly I hate the modern way of doing business. "Operating 25% in the red is fine as long as we're growing 200% a year" and just keep doing that until your co

by Causality1 7y ago

subjectHarold 7y ago
Unfortunately, there is a real lack of clear thinking about this. I will happily invest in a business that is making losses if the marginal ROI is strong. The market often gets these situations totally wrong. I hope this will continue but: businesses that are deploying a lot of capital even at very high rates can and often are loss-making. You can't just look at accounting profit, that tells you nothing. With Uber, there are two issues. First, they invested very heavily internationally (they are basically an EM stock). Second, they don't provide anywhere near enough financial info. But Lyft gets closer and their marginal ROI is clearly positive. Their fixed costs are garbage, Uber are taking unbelievable risks (reckless, imo) on EMs but the business model is definitely valid (I would say Lyft actually starts to look cheap in the $40-45 range).
Traster 7y ago
I think there are two issues operating here. The first issue is that there is absolutely a genuine business case where as long as your COGS is close to 0 then you literally can grow into profitability. That very clearly applies to Slack and other internet companies where you build the application and you're basically incurring only fixed costs. The second issue is that we have a number of companies that aren't that style of tech company that are wrongly valued like that. Companies like Uber, Tesla WeWork etc. All attempt to mask their traditional business with tech. I think we can make a pretty strong case that what we're seeing there is a bubble that will burst.