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This is true for so many "tech" darlings: Should Uber be priced like a tech company, or a cab company? Is Amazon a tech company or a retailer? Are ecommerce out

by md_ 4y ago

This is true for so many "tech" darlings: Should Uber be priced like a tech company, or a cab company? Is Amazon a tech company or a retailer? Are ecommerce outlets like Warby Parker and Away tech companies, or just retailers with good CSS? It continues to amaze me how investors seem bamboozled by the appearance of "tech company-ness", by businesses which are obviously in markets that don't support the high price to earnings of "tech companies"--valuations which are premised on strong network effects (present, to a degree, with Telsa, in the form of the charging network--but they will open that up to other carmakers, I guess?) and low unit costs (um, not for cars), and which fundamentally make no sense for things like retail (high unit costs, no network effects) or scooter rentals (high capital costs, high unit costs, limited network effects). But investors--showing the wisdom of crowds, I guess--seem frequently unable to look past the shiny CSS and the fact that the founder/CEO wears a turtleneck and the headquarters office has a beer tap.

miragecraft 4y ago
Amazon has AWS, Prime services and robots. They’re not like the other companies listed.
- magic_man 4y ago
  Amazon is an everything company. A little tech, a little retail, a little ads,a little logistics, a little entertainment.
philipov 4y ago
If their main business does not involve selling information technology to other people and companies, they're not a tech company.
- JumpCrisscross 4y ago
  > selling tech to other companies By that measure, Apple and Google aren’t tech companies. (Apple sells devices to consumers. Google sells ads to companies.) They are. They just aren’t software companies.
  - philipov 4y ago
    Google isn't a tech company, it's an ad company. Apple is a tech company because they sell computers, which are information systems: Hardware counts. Chip manufacturers are also good examples of tech companies.
    - JumpCrisscross 4y ago
      > Apple is a tech company because they sell computers, which are information systems If we’re making that stretch, I fail to see how a modern car isn’t an information system as well. What is and isn’t a tech company is context dependent. Economically, it describes a high gross margin business with negligible variable costs and vast scaling opportunity. By this definition, Tesla and Apple are not tech companies. The difference between them being Apple trades at 20x earnings while Tesla does 30+. If you’re in the job market, on the other hand, this isn’t nearly as relevant as revenue per employee and thus pay per employee, together with culture and type of work. By those definitions, both Apple and Tesla are tech companies, albeit idiosyncratically in their own ways.
      - philipov 4y ago
        It contains information systems, but it is not an information system. It is a vehicle. Its purpose is to provide transportation.
        JumpCrisscross 4y ago
        > contains information systems, but it is not an information system. It is a vehicle. Its purpose is to provide transportation By this measure, personal computers haven’t been tech since the 1980s. Virtually nobody wants an information system, whatever that means. They want to buy a function. That was OG Jobs.
    - myko 4y ago
      Google also sells computers, though: https://store.google.com/product/pixelbook_go?hl=en-US https://store.google.com/product/pixelbook_go?hl=en-US
j16sdiz 4y ago
Amazon's AWS definitely should be treated as tech.
- md_ 4y ago
  AWS, yes. Retail? Nah.
  - hef19898 4y ago
    Even back when I worked there in logistics, I wondered how much of AMZN share price comes from AWS and how much comes from retail. But then it is difficult, cash flow comes from retail, profits come from AWS. So Amazon might actually be both, and benefiting from it.
    - md_ 4y ago
      Definitely. I'm not claiming it's black and white or either/or, to be clear. But, what are the characteristics investors should look at for "tech company P:E"? Presumably a non-linear profit curve driven by low unit costs, linear or increasing revenue per unit, and strong network effects. IOW, if you're building the next Microsoft, each unit of Windows sold costs you nothing, makes you the same revenue (and thus more profit) than the previous unit, and increases the appeal of Windows because "everyone is using it." Retail businesses are just totally the opposite of that. The network effects are limited. (I guess for marketplaces this isn't totally the case: if everyone is buying on Amazon, then more resellers want to become Amazon resellers. But then, for "platforms" like Uber, it seems the network effects are weaker than we might think; drivers and users both find it easy to drive for/hail on Uber, Lyft, etc, side-by-side.) The unit costs are fixed. As the retailer gets bigger, their growth naturally trends closer to overall economic growth. (If you sell software, and the software makes workers 10x more productive, you can expect to get a cut of that 10x in productivity. If you sell milk, your market is going to grow at the rate at which demand for milk grows.) The real malefactors, in my mind, are people like Warby Parker, Away, Casper, etc--direct to consumer is fine and well and probably lowers costs a bit, but it's fundamentally similar to ordering from the Sears Catalog in the 19th century. But by some bizarre combination of hype and, I know I keep saying it, clever CSS, these jokers have convinced investors they're somehow different. See https://www.economist.com/business/2021/09/09/direct-to-consumer-retailers-try-to-bring-pizzazz-to-dull-goods https://www.economist.com/business/2021/09/09/direct-to-cons..., https://www.ft.com/content/616421f0-6946-485a-aca4-e9a2a522af25 https://www.ft.com/content/616421f0-6946-485a-aca4-e9a2a522a..., etc.
UIUC_06 4y ago
I did my post, and then I saw yours. More examples, and excellent analyses!
shadowgovt 4y ago
And of course, there's the meta-question: Why do investors price so highly these gambles over things that are already generating demonstrable value for real human beings? Like, why do these cultural signifiers make them salivate to be parted from their funds given the track record of tech (20% fail in year 1, 1% become unicorns, 18% of first-time founders generate a company that can even tread water)?
- humanistbot 4y ago
  Oh, that's the easy question, it is one of basic psychology. We like and trust people and environments that are similar to our own.
- md_ 4y ago
  Presumably a combination of survivorship bias (we are most aware of the successful tech companies with asshole-founders-and-foosball-tables-in-the-lounges, and not all of the unsuccessful companies with the same) and fundamental attribution error (we think having an asshole-founder-and-foosball-tables is predictive of or causally related to being successful).
gitfan86 4y ago
As someone who has beat the market (S&P500) for the past 17 years, I agree that there is a problem with people not understanding markets/technologies. But a bigger issue is that A LOT of people are looking for short term gains. Just look at crypto, even the most serious/nonscammy people in the space believe it will take many years to reach it's true potential, but if you look that the message boards and twitter, they are full of people talking about daily/monthly or even hourly gains. These people don't actually care if PLTR hits 500B in revenue in 2035, they just want their stock price to go up 10x this year.
- Ekaros 4y ago
  I think truth might be that markets are not as efficient as many would want everyone to believe. And then there is lot of effects that could affect the true efficiency, like index-funds and ESG scores.
- md_ 4y ago
  Well, Keynsian Beauty Contest, then. As long as you play it better than the others, you win. I don't do a lot of individual stock picking, because I can't be assed to look too closely at fundamentals and I don't think I have a good enough pulse on the public opinion that I can predict who Redditors will think is a sexy CEO next.
- nebula8804 4y ago
  Can you blame them? This same market has stagnated wages for decades and so the only way to have a chance get ahead is to gamble.

by md_ 4y ago

miragecraft 4y ago

Amazon has AWS, Prime services and robots. They’re not like the other companies listed.

magic_man 4y ago
Amazon is an everything company. A little tech, a little retail, a little ads,a little logistics, a little entertainment.

philipov 4y ago

If their main business does not involve selling information technology to other people and companies, they're not a tech company.

JumpCrisscross 4y ago
> selling tech to other companies By that measure, Apple and Google aren’t tech companies. (Apple sells devices to consumers. Google sells ads to companies.) They are. They just aren’t software companies.
- philipov 4y ago
  Google isn't a tech company, it's an ad company. Apple is a tech company because they sell computers, which are information systems: Hardware counts. Chip manufacturers are also good examples of tech companies.
  - JumpCrisscross 4y ago
    > Apple is a tech company because they sell computers, which are information systems If we’re making that stretch, I fail to see how a modern car isn’t an information system as well. What is and isn’t a tech company is context dependent. Economically, it describes a high gross margin business with negligible variable costs and vast scaling opportunity. By this definition, Tesla and Apple are not tech companies. The difference between them being Apple trades at 20x earnings while Tesla does 30+. If you’re in the job market, on the other hand, this isn’t nearly as relevant as revenue per employee and thus pay per employee, together with culture and type of work. By those definitions, both Apple and Tesla are tech companies, albeit idiosyncratically in their own ways.
    - philipov 4y ago
      It contains information systems, but it is not an information system. It is a vehicle. Its purpose is to provide transportation.
      - JumpCrisscross 4y ago
        > contains information systems, but it is not an information system. It is a vehicle. Its purpose is to provide transportation By this measure, personal computers haven’t been tech since the 1980s. Virtually nobody wants an information system, whatever that means. They want to buy a function. That was OG Jobs.
  - myko 4y ago
    Google also sells computers, though: https://store.google.com/product/pixelbook_go?hl=en-US https://store.google.com/product/pixelbook_go?hl=en-US

j16sdiz 4y ago

Amazon's AWS definitely should be treated as tech.

md_ 4y ago
AWS, yes. Retail? Nah.
- hef19898 4y ago
  Even back when I worked there in logistics, I wondered how much of AMZN share price comes from AWS and how much comes from retail. But then it is difficult, cash flow comes from retail, profits come from AWS. So Amazon might actually be both, and benefiting from it.
  - md_ 4y ago
    Definitely. I'm not claiming it's black and white or either/or, to be clear. But, what are the characteristics investors should look at for "tech company P:E"? Presumably a non-linear profit curve driven by low unit costs, linear or increasing revenue per unit, and strong network effects. IOW, if you're building the next Microsoft, each unit of Windows sold costs you nothing, makes you the same revenue (and thus more profit) than the previous unit, and increases the appeal of Windows because "everyone is using it." Retail businesses are just totally the opposite of that. The network effects are limited. (I guess for marketplaces this isn't totally the case: if everyone is buying on Amazon, then more resellers want to become Amazon resellers. But then, for "platforms" like Uber, it seems the network effects are weaker than we might think; drivers and users both find it easy to drive for/hail on Uber, Lyft, etc, side-by-side.) The unit costs are fixed. As the retailer gets bigger, their growth naturally trends closer to overall economic growth. (If you sell software, and the software makes workers 10x more productive, you can expect to get a cut of that 10x in productivity. If you sell milk, your market is going to grow at the rate at which demand for milk grows.) The real malefactors, in my mind, are people like Warby Parker, Away, Casper, etc--direct to consumer is fine and well and probably lowers costs a bit, but it's fundamentally similar to ordering from the Sears Catalog in the 19th century. But by some bizarre combination of hype and, I know I keep saying it, clever CSS, these jokers have convinced investors they're somehow different. See https://www.economist.com/business/2021/09/09/direct-to-consumer-retailers-try-to-bring-pizzazz-to-dull-goods https://www.economist.com/business/2021/09/09/direct-to-cons..., https://www.ft.com/content/616421f0-6946-485a-aca4-e9a2a522af25 https://www.ft.com/content/616421f0-6946-485a-aca4-e9a2a522a..., etc.

UIUC_06 4y ago

I did my post, and then I saw yours. More examples, and excellent analyses!

shadowgovt 4y ago

And of course, there's the meta-question: Why do investors price so highly these gambles over things that are already generating demonstrable value for real human beings? Like, why do these cultural signifiers make them salivate to be parted from their funds given the track record of tech (20% fail in year 1, 1% become unicorns, 18% of first-time founders generate a company that can even tread water)?

humanistbot 4y ago
Oh, that's the easy question, it is one of basic psychology. We like and trust people and environments that are similar to our own.
md_ 4y ago
Presumably a combination of survivorship bias (we are most aware of the successful tech companies with asshole-founders-and-foosball-tables-in-the-lounges, and not all of the unsuccessful companies with the same) and fundamental attribution error (we think having an asshole-founder-and-foosball-tables is predictive of or causally related to being successful).

gitfan86 4y ago

As someone who has beat the market (S&P500) for the past 17 years, I agree that there is a problem with people not understanding markets/technologies. But a bigger issue is that A LOT of people are looking for short term gains. Just look at crypto, even the most serious/nonscammy people in the space believe it will take many years to reach it's true potential, but if you look that the message boards and twitter, they are full of people talking about daily/monthly or even hourly gains. These people don't actually care if PLTR hits 500B in revenue in 2035, they just want their stock price to go up 10x this year.

Ekaros 4y ago
I think truth might be that markets are not as efficient as many would want everyone to believe. And then there is lot of effects that could affect the true efficiency, like index-funds and ESG scores.
md_ 4y ago
Well, Keynsian Beauty Contest, then. As long as you play it better than the others, you win. I don't do a lot of individual stock picking, because I can't be assed to look too closely at fundamentals and I don't think I have a good enough pulse on the public opinion that I can predict who Redditors will think is a sexy CEO next.
nebula8804 4y ago
Can you blame them? This same market has stagnated wages for decades and so the only way to have a chance get ahead is to gamble.