7 ms·
Isn't it amazing that you can become the richest person in the world by building companies that lose money? By lose money I mean all money ever put into the com
by htss2013 3y ago
Isn't it amazing that you can become the richest person in the world by building companies that lose money? By lose money I mean all money ever put into the company versus profits made.
The idea of creating a profitless company that somehow makes you personally rich used to be thought of as a fluke. Yes it's possible but it shouldn't happen and aside from extreme luck it won't.
Something has changed. Losing money and getting rich anyway has gone from fluke to something else, and it feels like we are lying about how the game really works.
- misiti3780 3y agoTesla doesnt lose money. It has been profitable for the past 14 quarters in a row. SpaceX clearly could be profitable if it wanted to be, and it clearly will be in the future. It will probably be very profitable. Most tech companies lose money before they make money. Amazon lost a shitload of money before it started turning a profit, now Jeff Bezos is the 2nd richest person in the world.
- rogerkirkness 3y agoTesla accumulated surplus/deficit (e.g. lifetime net consumption of cash) is much higher than it's lifetime gross burn ($6B) so it's definitely in material value creation territory.
- marvin 3y agoThis has also been clear to dedicated observers since 2017 or so, albeit with significant unresolved risk. The market finally priced it in around 2019-2020.
- JumpinJack_Cash 3y ago> > Amazon lost a shitload of money before it started turning a profit Amazon businss model was/is based on selling books/toys etc. online. Basically Walmart but online + obsession over customer and improving the quality of life of the customer + AWS Cloud. Tesla business model is based on the political choice to do away with fossil fuels. They aren't the same. Tesla is the product of a centrally planned economy because the avg. person didn't jumpstart the Tesla/EV phenomenon. Matter of fact when the avg. person is left free to choose with their wallet they stil buy ICE cars, despite all the billions in subsidies, funny math and psyop over the population to convince them that they are evil because they don't have the same time horizion of a SV billionaire who thinks that we should go to Mars because the Earth will be destroyed by the sun 5bn years from now.
- misiti3780 3y agoHow does this refute my point?
- georgeg23 3y agoYes SpaceX loses money, but it doesn't matter because it's a nationally strategic company. It's valuation makes sense given the Griffin discussion below. https://news.ycombinator.com/context?id=37166675 https://news.ycombinator.com/context?id=37166675
- dabeeeenster 3y agoNot sure why this is being upvoted. They are launching mass into space at between 1 and 2 orders of magnitude lower cost than anyone else. The R+D costs on that is insane. And they are almost profitable. I 100% agree that du-jour saas companies raising 300MM on limited revenue is one thing, but this is not the same.
- electriclove 3y agoThere is a lot of hate on anything Elon does. The market is valuing his companies based on exactly what you stated. If people read the mission statements of these companies and listen to what Elon says, it is pretty clear on what his goals are. And contrary to what most believe, it is not to make himself tons of money. These companies are going to make money as a means to accomplish their goals. The control could shift away from him in the future and then at that point the goals could change to shareholder profits but that is not the case currently.
- busterarm 3y agoTDS has evolved into MDS.
- exodontist 3y agoBy TDS do you mean people disgusted by the 4x indicted rapist ex us president? And that that disgust has somehow morphed into a dislike for a south african immigrant who became the wealthiest man in America?
- pengaru 3y ago[flagged]
- JumpinJack_Cash 3y ago> > read the mission statements Musk has been making mission statements ever since the days of Paypal. It's been 30 long years. And he has never delivered tangible quality of life improvement for the avarage American You can hate on Gates and Bezos and Zuck, tell you what, I will be joining you in that fight. But the products and services that they signed off are everywhere in society and if you disappeared them you'd have chaos if not outright civil war by the end of the month. (Note that I said 'signed off' not 'built') Disappear Tesla and SpaceX and you'd have the manbun and big latte crowd throw a tantrum on ExTwitter and not much else. Life will go on as usual, for all practical purposes it's like you disappeared Tiffany&CO
- wddkcs 3y agoThe market is pricing in future growth. You can say the market is incorrectly evaluating the potential return, but it's hard to argue that Tesla and SpaceX aren't going to cash in on that potential. How else should the market be treating companies with obvious high growth potential?
- bmitc 3y ago> The market is pricing in future growth. Does that answer the question, though? Future growth is an estimate and approximation, is not real, and says nothing about current revenues and losses.
- zamadatix 3y agoWhat you get paid for isn't realized gains rather selling your future gains at a rate lower than others (i.e. the market) expects them to actual be worth. If the question is about how this makes sense then sure, it answers the question - you're selling your future gains now to fund the company which means the current value of your shares will reflect that future predicted value as well. If the question is "why without involving any future possibilities" then no, it doesn't answer the question, but I'm not sure the question makes any more sense than "why is the sun so hot ignoring fusion". Another way to think of it is if I spent 10 billion to make a company which now successfully produces gold bricks from wood in a way most think I'll be historically net positive in 5 years then it's not really a mystery why waiting 5 years for the number to hit 0 is not particularly relevant to when people may be interested in buying parts of the company.
- wddkcs 3y agoIt's the assumption of Capitalism that markets are the most fair pricing mechanism. I'd love to see that proven untrue
- TheAlchemist 3y agoIt is very possible, even probable, that Tesla's glory days are already behind it. Their margin are contracting, and it's actually probable they will loose money in Q3, Q4 this year. They don't have any significant advantage on competition anymore, and China's competition is already well ahead Tesla. Elon himself suggested Tesla is worthless as a 'car making company' and it's value will come from solving autonomy with FSD. While Tesla is very good at marketing, there were 2 companies allowed to operate self-driving taxis in SF past month, and there are already several operating in China. It's hard to argue that Tesla still has the lead in that domain.
- jeffreyrogers 3y agoWait until you learn about the biotech industry, they often go public with no revenue. I don't think there is anything wrong with this though, markets are pricing future growth, which may or may not materialize.
- getoffmycase 3y agoBiotech and drug discovery is inherently gambling. Most May tank, but some have the potential to 10-20x. Traditionally their IPOs allowed them to spread the risk out broadly amongst the public. Then they somehow became stupidly overvalued in 2020-2021
- htss2013 3y agoI actually think this makes sense. It's basically outsourced R&D for pharma companies via acquisition of companies once they get at or near approval of a new drug. This is why I don't take seriously any stats about pharma R&D spending. They don't consider acquisitions to be R&D even though it often effecively is.
- LeifCarrotson 3y agoUsed to, as of when? The good old days of the 1990s? I think it goes back a lot further than that. For a much more thorough look at how our modern financial systems produce what naive thinkers would consider to be bizarre results, I highly recommend Mariana Mazzucato's "The Value of Everything." It's a challenging read, but it goes into the details of how economic and political thought has shifted over the centuries regarding the concept of wealth and value creation, and how the game really works.
- germinalphrase 3y agoShe also gave a talk in 2019 called “Rethinking Value” at the Long Now Foundation: https://longnow.org/seminars/02019/jun/24/rethinking-value/ https://longnow.org/seminars/02019/jun/24/rethinking-value/
- nabla9 3y agoHe is a socialist hero then? Wages before profits. His companies has paid worker salaries from day one and continues to pay wages for over 127,000 people every month. /s
- elitan 3y agoGreat take!
- TheAlchemist 3y agoWe are living in 'incredible' times indeed - what used to happen during market bubbles, became the norm recently. This chart is quite amazing: https://apolloacademy.com/40-of-companies-in-russell-2000-have-negative-earnings/ https://apolloacademy.com/40-of-companies-in-russell-2000-ha... In Russell 2000, 40% companies lost money in 2022. It's higher than the peak of dot-com bubble, and almost as high as at the worst of financial crisis in 2008-2009. And it seems to be the norm lately. Eventually though, everything comes back to earth.
- eagleinparadise 3y agoAmazon never made any money... until it did. And boy were a lot of people wrong. It's plenty easy to lose money and stay poor. Only a handful of people in the world have "lost money and became kings" Want to do the same? You live in the same capitalistic society as Elon/Bezos...
- mgolawala 3y agoThe valuation of the company has little to do with the equation of how much profit has been made in the past. It is focused on the companies profit potential in the future. This has always been the case. Sears or Ford may have produced a ton more in profit than was, as you say, put into the company. But the current valuation is based on what profit the market believes it will produce in the future.
- ryandrake 3y agoI think what amazes OP is that "convincing people that profit will happen in the future" produces better stock value than actual profit happening today. We all know that's how it works but it's still amazing. The market is clearly showing that a bird in hand is worth less than two that might be in the bush 10 years from now.
- JumpinJack_Cash 3y ago> > This has always been the case Musk is 50, already past his intellectual prime. Has been an entrepreneur (or at least he claims) ever since he was 20. If he hasn't delivered any profit in 30 years, it's clear that his business model is based on politics, subsidies and aggressive promotion to sell the stock and enrich himself as opposed to building something that improves the quality of life of the avg. citizen.
- inemesitaffia 3y agoNo profit in 30 years? You know people can count? Are you one of these people who believe contracts/loans are subsidies?
- d136o 3y agoI am not a finance professional but… Say you make $1 of profit, does that translate into $1 your company can control for its benefit? If kept as profit part of that dollar flows out of the company, to other companies and possibly to the government as taxes (god forbid). If the company reinvests then it fully benefits from its would be $1 as opposed to someone spending it elsewhere. IMO Accounting is the only reason many companies don’t turn an external “profit”
- Dig1t 3y agoSpaceX is investing a ton of money into Starship/RnD. Those investments will basically be a money printer by lowering the cost to orbit drastically below any possible competitor. It’s a long term play and it’s very smart.
- s1artibartfast 3y agoIn addition to what other people have said, it's important to note that Elon Musk hasn't realized any gains from SpaceX. There's a huge difference between unrealized value and actual profit. It's like living in a house worth 1 million. That doesn't mean that you have a million dollars to spend on toys. The value might go down or the house might get trashed.
- lamontcg 3y agoIf you have a growth company with high return on capital the worst thing to do would be to return the operating profits as taxed dividends or just sit on the cash or something like that. If you can grow the business then the best thing to do with those operating profits is to pump it back into expanding the business and the capital and capturing more revenue next year. You aren't losing money, you're building a larger economic engine for capturing future cashflows, which is doing your investors a favor since they'll own a larger chunk of the economy next year. This assumes that the business is, of course, growing though and growing at a faster rate than the economy and its competitors, and that it has a positive return on capital from the core of the business. A growing company with high return on capital which is not aggressively reinvesting in itself would be a red flag. This should go in one of those "Myths that Engineers Believe about Finance" that all companies that don't produce profits are bad.
- VHRanger 3y agoThere's a difference between accounting profits and economic profits. Growing a company that loses on its unit economics (eg. WeWork) ought not to make founders rich
- lamontcg 3y agoYou're assuming that the only way for a company to not post profits is for all its margins to be flat-to-negative. If the company has high operating margins and high growth then it makes sense to take those profits and reinvest in capital and R&D to make the company bigger. That is the definition of an efficient economic machine builds itself, and the way to a very good stock for the investor. That is different from the pathological stock with flat operating margins which is growing on debt, spending $1 to make less than $1 at the margins and will only consume itself as it grows. And learning to tell the difference between those two requires learning to read 10-K's, you can't just look at the net earnings bottom line.
- deleted 3y ago[deleted]
- screye 3y agoSpaceX funding is covert US defense spending. It is the most efficient $ spent by Pentagon. It us economically inefficient but every thing in US defense is so mindbogglingly economically inefficient that it makes SpaceX look like amazing value. (and IMO justifiably so)