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I really have a hard time understanding these arguments. There are some good examples out there of difficult-to-understand buys and misunderstood valuations- t

I really have a hard time understanding these arguments. There are some good examples out there of difficult-to-understand buys and misunderstood valuations- there's no way the WhatsApp purchase is ever going to recoup its costs(the userbase is irrelevant, at a $1 per year price it just isn't gonna happen, especially considering the WhatsApp founders claimed they weren't going to be charging any more than that or for many other services they wanted to provide, AND that they wouldn't have ads), King.com is just this year's Zynga(news to the tech investment scene: The games industry is not nearly as simple as you seem to think it is), and there's no shortage of questionable investments in smaller companies, to be sure. But then, you use examples like Airbnb and Oculus as an example of tech industry madness? "Airbnb is like a hotel chain without the hotels." Yeah. That means they absolve themselves of costs, growth time, investment into that growth, location issues, the works. They hacked the concept of a hotel, and found the holy grail for that market space. Frankly, if you think $10 billion is a ridiculous number, with them being worth more than Hyatt- I'd be inclined to wonder what holds them back being worth 3 Hyatts. They've got momentum, they've got product, and they've got the community. Short of the possibility of some grand competitor actually coming in and doing a bangup job, I think Airbnb's potential is at least an order of magnitude higher than this. And Oculus- so they have little revenue now? They have decent revenue at all for a product that has only been released to developers. You even admit that VR can completely change the world, but don't do the homework to understand they're probably less than 2 years from a product release with massive community and business support? What, did your deadline come up and you just had to submit? Look, it's fine if you think either are overvalued. But trying to use either in your examples for how we're in a 1999-style bubble is laughable. You hand us two of the best reasons we're not in a bubble and wonder why everyone thinks we're not. Really now?

FollowSteph3 13y ago
You used the keyword here of a bubble. Potential versus realized revenues and profits ;)
- angrybits 13y ago
  No, it's the keyword of an investment. You're trying to grow your capital by investing in companies that you expect to grow in value. It's all about potential.
  - keule 13y ago
    Now you bringing up a keyword: expectation. I am starting to get sick of every argument that tries to defend these rediculous investment decisions these days. Currently everyone doing that is citing network effects, potential growth, the next big thing.. And for sure, if someone wants to invest his or her money, I will not judge that decision or the person itself. But looking at the situation as a whole, so many decisions are made based on highly flawed expectations. A nice designed marketing page and multiple years without revenue? Here take some $m because <insert overestimation in here>. Consider Airbnb.. I use it myself, but I am by no means locked in as a customer. Maybe it will crumble due to new/old regulation. Maybe too many weird people will start offering their spare-rooms, and it won't feel cool and hip anymore. Maybe hotel-chains react by offering better prices... There are so many maybes in that company alone.. simply believing in the network effect should not be the basis of a meaningful valuation. I am highly sceptical about the current behavior of this part of the investment market. My concern lies not in the companies or the investors themself. They probably did hedge their risks. I just feel that the next bursting bubble will stretch far beyond the whatsapps and airbnbs out there.
prostoalex 13y ago
Oculus, Airbnb and WhatsApp transactions occurred in the private markets, so unclear what "stock market" the writer is referring to. Both of Facebook deals are largely payments in Facebook stock, so the value of those transactions would go down if public investors found them frothy.
Jare 13y ago
> [AirBnB] absolve themselves of costs, growth time, investment into that growth, location issues, the works That makes them much more easy to replace with a competitor, which is a mark of other bubble-like companies with explosive growth but debatable long-term solid value.
- _delirium 13y ago
  It's surprisingly hard to displace companies with significant network effects even if they have no technology to speak of, pay little attention to the market or users, or really do anything else except exist with a large market share. See: eBay, Craigslist. Closer to AirBnB's niche (since I see AirBnB as essentially "Couchsurfing for money"), Couchsurfing has also persisted despite taking the initial community organization private, which resulted in much of its initial active community leaving, and not really improving the site much since then... because it's Couchsurfing, the site identified with a verb that refers to a particular kind of travel. (Large parts of the initial community founded BeWelcome, fwiw, which is a less-successful fork, though it has moderate traction.) It's possible to lose a big lead (see: MySpace), but a company that is popularly identified with a particular niche can coast for a really long time without doing much to deserve it.
  - XorNot 13y ago
    AirBnb won't be replaced, it'll be made illegal. It's exploiting - in a significant way - something which was already illegal in a lot of places, or certainly skirting neighborhood ettiquette (i.e. not illegal, but do it enough and there'd be good reasons to make it so). It runs the very serious risk that there'll be crackdowns in popular cities on AirBnb style subletting, and once that happens their income base is only going to go into decline from then on out.
    - _delirium 13y ago
      Some of it is, yes. It's combining a number of markets, though. The most problematic is people who are basically running classic, 1920s-flophouse-style, unlicensed and uninspected hotels in places like NYC. I would guess those will eventually be cracked down on. But there are two other big categories. The second is the "couchsurfing for money", people who really are renting out a spare couch or spare bedroom. These are also often illegal, but at least if they do it less often than "always", and fairly discreetly, are much less likely to run into trouble than the person running a full-fledged flophouse operation. The third category are people running fully licensed vacation rentals. AirBnB has somewhat accidentally captured a good portion of this market as well, in large part because its competitors in much of the world range from poor to "don't have an English website" to nonexistent. I rented a house in Crete in this category last year; it was a place that otherwise you could rent directly or via a travel agency, but I only found it via AirBnB because their internet presence apart from AirBnB was poor. I think even in the U.S., which has VRBO as the incumbent, AirBnB is picking up some of this business.
callmeed 13y ago
I have about a 50% success rate with AirBnB when using it. At a hotel I know what to expect and those expectations are met probably 90% of the time. I'm not going to enter a room at the Hyatt and have my eyes start watering because it smells so strongly of cat piss (actually happened). How can people argue that AirBnB is anything but pretty CSS and some tech. efficiencies on top of HomeAway/VRBO? It may be a substitute for a hotel, but it is not Hyatt. You also forgot to bring up all the regulatory hurdles AirBnB faces in a multitude of cities, counties, states, and countries. I really don't understand how investors are not calculating that into the risk and valuation (maybe they are).
- bksenior 13y ago
  Thats crazy. IN my experience a good hotel experience is not 9 in 10 trips, but instead significantly less.
  - sokoloff 13y ago
    I don't care so much about having a good experience, but I like the near-guarantee of an acceptable experience. I can't think of the last time I had a hotel stay that was below acceptable. I vaguely recall having to switch rooms once over an HVAC issue they couldn't solve. The total inconvenience to me there was well under an hour and that's probably been 10 years (and a corresponding 200 nights in hotels). Do you find a hotel room unacceptable in some way significantly more than 10% of the time?
- jval 13y ago
  You're comparing apples with oranges. Airbnb's success is thanks to people like me who can't afford the comfortable certainty of checking into a Hyatt every time I stay abroad. Airbnb's success rate and level of amenities compared to hotels of a similar price range is nothing short of incredible. I couldn't have done half the travelling I have without it.
  - ekianjo 13y ago
    Without even talking about Hyatt, AirBnB is not that much cheaper than most hotel chains in big cities. If it were like 50% of the price, yeah, why not, but usually it's about the same in the places where I go, so it does not make sense to play Russian roulette with them.
6cxs2hd6 13y ago
Correct me if I'm wrong, but hotel chains like Hyatt, Hilton, Marriott, Ritz Carlton, etc. are franchisers. The company may own and operate a few hotels itself, but the vast majority are owned and operated by third parties. The hotel chain is essentially a booking service for others who want to rent their space. In that respect[1] Airbnb is not very different. The bad news is, that's partly why they're facing regulatory grief. The good news is, they could easily be worth more than a Hyatt, because it's not as if Hyatt is worth X due to owning so many real estate assets (they don't). [1]: In other respects, of course, it's very different. Airbnb doesn't franchise. The owner/operators are mostly individuals, not professional hoteliers.
- zizee 13y ago
  Correct me if I'm wrong, but hotel chains like Hyatt ... the vast majority are owned and operated by third parties. I think that is slightly wrong. The vast majority are owned by third parties, but Hyatt operates the hotels.
7Figures2Commas 13y ago
> "Airbnb is like a hotel chain without the hotels." Yeah. That means they absolve themselves of costs, growth time, investment into that growth, location issues, the works. This is brought up a lot in discussions of AirBnB's value, but overlooks several important facts: 1. Real estate is an asset. Just because there may be costs associated with it doesn't mean that it isn't desirable to own. 2. A number of major hotel brands franchise and provide management services; they don't own all of the properties that sport their brands. 3. Hotels are able to capture revenue from revenue streams that AirBnB can't, such as events and F&B. This doesn't mean AirBnB isn't valuable, perhaps more so than certain hotel chains, but overly casual comments in the vein of "AirBnB doesn't have any buildings to maintain!" aren't the basis of a serious, credible argument that AirBnB is more valuable than major hotel chains.
ekianjo 13y ago
> And Oculus- so they have little revenue now? They have decent revenue at all for a product that has only been released to developers. You even admit that VR can completely change the world, but don't do the homework to understand they're probably less than 2 years from a product release with massive community and business support? What, did your deadline come up and you just had to submit? Occulus is a big question mark, honestly. Nobody knows how much it will be worth down the road. Even if the hardware itself is cool, there are several issues facing that market: - you need additional hardware to use it, and the additional hardware is at least going to cost 500-600 USD for a good experience with the Rift. Peripherals don't have an history of selling very well. - Currently we don't know if there are going to be killer titles to drive the adoption, and Facebook has zero experience to make games as first party. So they have to rely 100% on third parties which may be an additional risk. - Occulus is a hardware product. Usually margins on hardware tend to be thin (i.e. thinner than on software), especially as competition is unleashed. - VR to completely change the world. Meh, we've heard this in the past 20 years every single time something new came out from Silicon Valley, yet the world is very much the same - there were very few massive disruptions. I could think of a dozen reasons why most people wouldn't want to use VR on a regular basis. - The game industry is not in a very healthy state right now, and if supposedly the Rift is going to be mainly for gaming, I'm not sure what this says about its future. Of course, the Occulus Rift could ending up being very big, but it's actually a risky investment at this stage since there's not much proof of what size you can expect in terms of market at all.

FollowSteph3 13y ago

You used the keyword here of a bubble. Potential versus realized revenues and profits ;)

angrybits 13y ago
No, it's the keyword of an investment. You're trying to grow your capital by investing in companies that you expect to grow in value. It's all about potential.
- keule 13y ago
  Now you bringing up a keyword: expectation. I am starting to get sick of every argument that tries to defend these rediculous investment decisions these days. Currently everyone doing that is citing network effects, potential growth, the next big thing.. And for sure, if someone wants to invest his or her money, I will not judge that decision or the person itself. But looking at the situation as a whole, so many decisions are made based on highly flawed expectations. A nice designed marketing page and multiple years without revenue? Here take some $m because <insert overestimation in here>. Consider Airbnb.. I use it myself, but I am by no means locked in as a customer. Maybe it will crumble due to new/old regulation. Maybe too many weird people will start offering their spare-rooms, and it won't feel cool and hip anymore. Maybe hotel-chains react by offering better prices... There are so many maybes in that company alone.. simply believing in the network effect should not be the basis of a meaningful valuation. I am highly sceptical about the current behavior of this part of the investment market. My concern lies not in the companies or the investors themself. They probably did hedge their risks. I just feel that the next bursting bubble will stretch far beyond the whatsapps and airbnbs out there.

prostoalex 13y ago

Oculus, Airbnb and WhatsApp transactions occurred in the private markets, so unclear what "stock market" the writer is referring to. Both of Facebook deals are largely payments in Facebook stock, so the value of those transactions would go down if public investors found them frothy.

Jare 13y ago

> [AirBnB] absolve themselves of costs, growth time, investment into that growth, location issues, the works That makes them much more easy to replace with a competitor, which is a mark of other bubble-like companies with explosive growth but debatable long-term solid value.

_delirium 13y ago
It's surprisingly hard to displace companies with significant network effects even if they have no technology to speak of, pay little attention to the market or users, or really do anything else except exist with a large market share. See: eBay, Craigslist. Closer to AirBnB's niche (since I see AirBnB as essentially "Couchsurfing for money"), Couchsurfing has also persisted despite taking the initial community organization private, which resulted in much of its initial active community leaving, and not really improving the site much since then... because it's Couchsurfing, the site identified with a verb that refers to a particular kind of travel. (Large parts of the initial community founded BeWelcome, fwiw, which is a less-successful fork, though it has moderate traction.) It's possible to lose a big lead (see: MySpace), but a company that is popularly identified with a particular niche can coast for a really long time without doing much to deserve it.
- XorNot 13y ago
  AirBnb won't be replaced, it'll be made illegal. It's exploiting - in a significant way - something which was already illegal in a lot of places, or certainly skirting neighborhood ettiquette (i.e. not illegal, but do it enough and there'd be good reasons to make it so). It runs the very serious risk that there'll be crackdowns in popular cities on AirBnb style subletting, and once that happens their income base is only going to go into decline from then on out.
  - _delirium 13y ago
    Some of it is, yes. It's combining a number of markets, though. The most problematic is people who are basically running classic, 1920s-flophouse-style, unlicensed and uninspected hotels in places like NYC. I would guess those will eventually be cracked down on. But there are two other big categories. The second is the "couchsurfing for money", people who really are renting out a spare couch or spare bedroom. These are also often illegal, but at least if they do it less often than "always", and fairly discreetly, are much less likely to run into trouble than the person running a full-fledged flophouse operation. The third category are people running fully licensed vacation rentals. AirBnB has somewhat accidentally captured a good portion of this market as well, in large part because its competitors in much of the world range from poor to "don't have an English website" to nonexistent. I rented a house in Crete in this category last year; it was a place that otherwise you could rent directly or via a travel agency, but I only found it via AirBnB because their internet presence apart from AirBnB was poor. I think even in the U.S., which has VRBO as the incumbent, AirBnB is picking up some of this business.

callmeed 13y ago

I have about a 50% success rate with AirBnB when using it. At a hotel I know what to expect and those expectations are met probably 90% of the time. I'm not going to enter a room at the Hyatt and have my eyes start watering because it smells so strongly of cat piss (actually happened). How can people argue that AirBnB is anything but pretty CSS and some tech. efficiencies on top of HomeAway/VRBO? It may be a substitute for a hotel, but it is not Hyatt. You also forgot to bring up all the regulatory hurdles AirBnB faces in a multitude of cities, counties, states, and countries. I really don't understand how investors are not calculating that into the risk and valuation (maybe they are).

bksenior 13y ago
Thats crazy. IN my experience a good hotel experience is not 9 in 10 trips, but instead significantly less.
- sokoloff 13y ago
  I don't care so much about having a good experience, but I like the near-guarantee of an acceptable experience. I can't think of the last time I had a hotel stay that was below acceptable. I vaguely recall having to switch rooms once over an HVAC issue they couldn't solve. The total inconvenience to me there was well under an hour and that's probably been 10 years (and a corresponding 200 nights in hotels). Do you find a hotel room unacceptable in some way significantly more than 10% of the time?
jval 13y ago
You're comparing apples with oranges. Airbnb's success is thanks to people like me who can't afford the comfortable certainty of checking into a Hyatt every time I stay abroad. Airbnb's success rate and level of amenities compared to hotels of a similar price range is nothing short of incredible. I couldn't have done half the travelling I have without it.
- ekianjo 13y ago
  Without even talking about Hyatt, AirBnB is not that much cheaper than most hotel chains in big cities. If it were like 50% of the price, yeah, why not, but usually it's about the same in the places where I go, so it does not make sense to play Russian roulette with them.

6cxs2hd6 13y ago

Correct me if I'm wrong, but hotel chains like Hyatt, Hilton, Marriott, Ritz Carlton, etc. are franchisers. The company may own and operate a few hotels itself, but the vast majority are owned and operated by third parties. The hotel chain is essentially a booking service for others who want to rent their space. In that respect[1] Airbnb is not very different. The bad news is, that's partly why they're facing regulatory grief. The good news is, they could easily be worth more than a Hyatt, because it's not as if Hyatt is worth X due to owning so many real estate assets (they don't). [1]: In other respects, of course, it's very different. Airbnb doesn't franchise. The owner/operators are mostly individuals, not professional hoteliers.

zizee 13y ago
Correct me if I'm wrong, but hotel chains like Hyatt ... the vast majority are owned and operated by third parties. I think that is slightly wrong. The vast majority are owned by third parties, but Hyatt operates the hotels.

7Figures2Commas 13y ago

> "Airbnb is like a hotel chain without the hotels." Yeah. That means they absolve themselves of costs, growth time, investment into that growth, location issues, the works. This is brought up a lot in discussions of AirBnB's value, but overlooks several important facts: 1. Real estate is an asset. Just because there may be costs associated with it doesn't mean that it isn't desirable to own. 2. A number of major hotel brands franchise and provide management services; they don't own all of the properties that sport their brands. 3. Hotels are able to capture revenue from revenue streams that AirBnB can't, such as events and F&B. This doesn't mean AirBnB isn't valuable, perhaps more so than certain hotel chains, but overly casual comments in the vein of "AirBnB doesn't have any buildings to maintain!" aren't the basis of a serious, credible argument that AirBnB is more valuable than major hotel chains.

ekianjo 13y ago

> And Oculus- so they have little revenue now? They have decent revenue at all for a product that has only been released to developers. You even admit that VR can completely change the world, but don't do the homework to understand they're probably less than 2 years from a product release with massive community and business support? What, did your deadline come up and you just had to submit? Occulus is a big question mark, honestly. Nobody knows how much it will be worth down the road. Even if the hardware itself is cool, there are several issues facing that market: - you need additional hardware to use it, and the additional hardware is at least going to cost 500-600 USD for a good experience with the Rift. Peripherals don't have an history of selling very well. - Currently we don't know if there are going to be killer titles to drive the adoption, and Facebook has zero experience to make games as first party. So they have to rely 100% on third parties which may be an additional risk. - Occulus is a hardware product. Usually margins on hardware tend to be thin (i.e. thinner than on software), especially as competition is unleashed. - VR to completely change the world. Meh, we've heard this in the past 20 years every single time something new came out from Silicon Valley, yet the world is very much the same - there were very few massive disruptions. I could think of a dozen reasons why most people wouldn't want to use VR on a regular basis. - The game industry is not in a very healthy state right now, and if supposedly the Rift is going to be mainly for gaming, I'm not sure what this says about its future. Of course, the Occulus Rift could ending up being very big, but it's actually a risky investment at this stage since there's not much proof of what size you can expect in terms of market at all.