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Why do you choose EBITDA? Last I heard it was utter nonsense”, at least according to Warren Buffet. https://m.youtube.com/watch?v=tvnKylAyLbQ https://m.youtube

Why do you choose EBITDA? Last I heard it was utter nonsense”, at least according to Warren Buffet. https://m.youtube.com/watch?v=tvnKylAyLbQ https://m.youtube.com/watch?v=tvnKylAyLbQ

phonon 3y ago
Their "Comprehensive Losses" for the last 3 years are (in thousands) (171,150) (343,375) (309,090) So there you go...
- librasteve 3y ago
  they lost 300 million in one year?
  - christkv 3y ago
    Stock compensation cash flow was positive meaning they added cash to their account.
- jeltz 3y ago
  Are they literally setting money on fire?
roenxi 3y ago
You'd probably save time if you directly suggest what income metric you want to use. In the video, Buffet is basically saying he cares about income after interest, tax, depreciation and amortisation. In other words, that he cares about actual income. That'd be very on-brand for Buffet. That measure won't be good for MongoDB Inc. either; they've been millions in the red for years. Losing $100 million in a year would be the best result they've achieved in a while now.
- _v7gu 3y ago
  so by Buffet's metric, Mongo is doing even worse
jpgvm 3y ago
Buffets point is that it can be gamed to look good. In this case even if they are gaming it to look better than it is.... well it's still awful.
blitzar 3y ago
People who use EBITDA are either trying to con you or they're conning themselves.
- aerhardt 3y ago
  Probably not used in a conning context when it’s 200-300 million in the red.
  - DrNash17 3y ago
    Hedge fund investor here chiming in for all of you financial wizards. Hint: don't look at EBITDA. Look at (Atlas) revenue, billings, (current) remaining performance obligations, and operating cash flow. On cash flow, some people decide they want to subtract stock comp (i.e. don't add it back in the GAAP Net Income > OCF reconcilation), but that's a whole other philosophical debate that the investing community has not settled on. Can someone tell me what their licensing changes are?
airstrike 3y ago
Buffett's criticism is that EBITDA is just accounting and he cares about cash flow, specifically also after paying for CAPEX (which is Investing Cash Flow so comes after Operating Cash Flow) EBITDA is used in the industry because it is a proxy for operating cash flow. Sometimes you don't have all the available data needed to get to OCF, or you're looking at company guidance (for future EBITDA values) or analyst estimates. It's easier to keep the conversation at the EBITDA level because it requires fewer assumptions. Generally the revenue line is ~easy to estimate because you can conceptualize how to go from the current number of customers to some future number of customers, how many dollars per customers and so on and so forth. Then as you work your way to EBIT (Operating Income) you still have to assume some gross margin, R&D expense, etc. These are pretty tangible. It should be pretty easy to get to estimated EBIT from what the company discloses in guidance or what analysts forecast. Since D&A is pretty linear over time, people generally assume it just remains constant as a % of revenue, so now you have EBITDA which is very much like cash flow EBITDA is similar to cash flow because it adds back to EBIT the non-cash expense that is D&A. The reason it's good to look at it before interest and taxes is because you're also thinking about how much cash the whole enterprise generates, not how much cash goes to equity holders at the end (which is often called "Free" Cash Flow because it's not tied up with commitments to others) Coming back to Buffett, in the industries he tends to pick stocks from, CAPEX is a major thing. Companies need to build factories, buy equipment, etc. So if you just look at future EBITDA without accounting for future CAPEX needs, you're fooling yourself. Truth be told, in those industries everyone also looks at "EBITDA minus Capex". Maybe they do so now that he's bemoaned everyone for not doing it in the first place, but IMHO his criticism largely doesn't apply among valuation professionals. Maybe it does for stock traders, but not for valuation purposes like in an M&A context

Why do you choose EBITDA? Last I heard it was utter nonsense”, at least according to Warren Buffet. https://m.youtube.com/watch?v=tvnKylAyLbQ https://m.youtube.com/watch?v=tvnKylAyLbQ

phonon 3y ago

Their "Comprehensive Losses" for the last 3 years are (in thousands) (171,150) (343,375) (309,090) So there you go...

librasteve 3y ago
they lost 300 million in one year?
- christkv 3y ago
  Stock compensation cash flow was positive meaning they added cash to their account.
jeltz 3y ago
Are they literally setting money on fire?

roenxi 3y ago

You'd probably save time if you directly suggest what income metric you want to use. In the video, Buffet is basically saying he cares about income after interest, tax, depreciation and amortisation. In other words, that he cares about actual income. That'd be very on-brand for Buffet. That measure won't be good for MongoDB Inc. either; they've been millions in the red for years. Losing $100 million in a year would be the best result they've achieved in a while now.

_v7gu 3y ago
so by Buffet's metric, Mongo is doing even worse

jpgvm 3y ago

Buffets point is that it can be gamed to look good. In this case even if they are gaming it to look better than it is.... well it's still awful.

blitzar 3y ago

People who use EBITDA are either trying to con you or they're conning themselves.

aerhardt 3y ago
Probably not used in a conning context when it’s 200-300 million in the red.
- DrNash17 3y ago
  Hedge fund investor here chiming in for all of you financial wizards. Hint: don't look at EBITDA. Look at (Atlas) revenue, billings, (current) remaining performance obligations, and operating cash flow. On cash flow, some people decide they want to subtract stock comp (i.e. don't add it back in the GAAP Net Income > OCF reconcilation), but that's a whole other philosophical debate that the investing community has not settled on. Can someone tell me what their licensing changes are?

airstrike 3y ago

Buffett's criticism is that EBITDA is just accounting and he cares about cash flow, specifically also after paying for CAPEX (which is Investing Cash Flow so comes after Operating Cash Flow) EBITDA is used in the industry because it is a proxy for operating cash flow. Sometimes you don't have all the available data needed to get to OCF, or you're looking at company guidance (for future EBITDA values) or analyst estimates. It's easier to keep the conversation at the EBITDA level because it requires fewer assumptions. Generally the revenue line is ~easy to estimate because you can conceptualize how to go from the current number of customers to some future number of customers, how many dollars per customers and so on and so forth. Then as you work your way to EBIT (Operating Income) you still have to assume some gross margin, R&D expense, etc. These are pretty tangible. It should be pretty easy to get to estimated EBIT from what the company discloses in guidance or what analysts forecast. Since D&A is pretty linear over time, people generally assume it just remains constant as a % of revenue, so now you have EBITDA which is very much like cash flow EBITDA is similar to cash flow because it adds back to EBIT the non-cash expense that is D&A. The reason it's good to look at it before interest and taxes is because you're also thinking about how much cash the whole enterprise generates, not how much cash goes to equity holders at the end (which is often called "Free" Cash Flow because it's not tied up with commitments to others) Coming back to Buffett, in the industries he tends to pick stocks from, CAPEX is a major thing. Companies need to build factories, buy equipment, etc. So if you just look at future EBITDA without accounting for future CAPEX needs, you're fooling yourself. Truth be told, in those industries everyone also looks at "EBITDA minus Capex". Maybe they do so now that he's bemoaned everyone for not doing it in the first place, but IMHO his criticism largely doesn't apply among valuation professionals. Maybe it does for stock traders, but not for valuation purposes like in an M&A context