The wave of unicorn IPOs
economist.com
economist.com
'...what they also lack, in 11 cases out of 12, are profits. Today, according to Jay Ritter of the University of Florida, 84% of companies pursuing ipos have no profits. That is remarkably high. Ten years ago, the proportion was just 33%. To see profitlessness as rampant as today’s you have to go back to the peak of the dotcom boom in 2000.'
I'm in the Bay Area and this late stage of the tech business cycle reminds me a lot of the build up to the dot com bust. for Enron see Theranos (and possibly even Tesla), along with lots of mega deals over basically profitless platform companies posturing around dominance of future markets...
Not sure the dotcom crash is comparable - those were the days of companies getting millions without so much as a business plan, and going public months after being born. Sure, the companies without solid fundamentals are not going to survive in the long run, but as an industry, I don't think we're anywhere close to the crazy old days.
There is a big difference between e.g. Amazon, which is unit profitable and could be more profitable at any time, Uber, which is unit profitable in some markets but not so in other markets, and something like WeWork, which is not unit profitable.
I am unsure what you mean exactly but if the company is making a choice between being profitable and growth it is a black-and-white (or a binary) consideration.
> A company has many financial dials and switches
What are these financial dial and switches?
It is one thing to opine whether a company might be profitable if they chose to and other to look at practical implications of this choice. An example, Uber might be chose to be profitable by raising ride prices or charging higher commissions to drivers or other means but it might lead to many drivers jumping ship or users booking less rides etc.
* Revenue > OPEX, but all the difference is put into expanding to new areas, maybe even topped with some debt. If needed, the expansion can be curbed, and profits will show. This is the Amazon case.
* Revenue < OPEX, and no matter what other expenses you cut, you make a loss on every sale. You cannot show a profit however you try. This is the case of WeWork and maybe Uber, AFAICT.
The amount of other expenses that you can cut to turn profitable, and the amount of profit surfaced this way, is indeed a kind of a spectrum, from near zero to a quite healthy ROI. But it does not apply for companies that are fundamentally in the red.
The label of "profitable" itself is pretty meaningless, given that you are at battle over many many years against competitors. One quarter of profitability might yield doom 3 quarters down the line due to lack of investment.
Good God, that's a terrifying statement.
When business stops being about "making money", I don't know what we're doing anymore.
The point of battling the competition is to make money. It's not about crushing them, beating them, or even being more profitable than them. It's about making money.
Yes, it's absolutely valid to choose to sacrifice a period of profitability in order to strategically set yourself up for better profits later. And if crushing the competition is how we do that, great.
But this game of never making profits is a fools game. If I invest my money in your company, it's because I expect you to make me money.
If the only way you make me money is by raising the value of the stock, then we're in a game of Dutch tulips, and the only question is whether I can time selling my stock properly to not be the greater fool.
But if you make me money by running a profitable company and disbursing the dividends, I'll hold onto that stock forever.
One of those approaches is ethical. The other is a scam.
Reading what was said, I imagine rolling out new markets, testing new customer acquisition methods, and hiring to focus on new features would all fit in this label as growth.
Things like R&D might not. If Uber has been investing in self-driving vehicles, it may not pay off in the short-term, and therefore wouldn't fit in this set as it's quite speculative. Technical debt might fit here too. Or marketing debt: perhaps they want to establish brand guidelines and everything that comes with it. Great investment but not what directly helps you grow. A more direct "financial dial" might be restructuring your company from a legal perspective and forming new entities.
Just sharing how I read "black-and-white consideration". Maybe the parent can clear up what they meant.
I think interest rates play a key role here. I was expecting rates to rise more, but it seems like the Fed is getting nervous and pausing rate hikes. So we may end up in a semi-permanent low interest rate environment, which should keep the VC money flowing for now. So at this point, I am not really sure what to expect.
This is the nature of swelling debt. This is most immediately exemplified in ponzi schemes.
Financially this only makes sense if the greater growth unlocks revenue sufficient to pay back earlier investors without a leveraged need for further investment at the same rate/scale. Otherwise the earlier investors might be paid back for their investment, but the later investors certainly won't. There is no way to predict that without first taking on the extra debt burden. Uggghh.
In that vein this is very much like the dot com crash. The dot com crash occurred for two reasons: over speculation and the investment in question was purely financial without any regard for the end product/service.
Hike prices for passengers -> passengers leave platform & switch to local/regional alternatives
Cut wages for drivers -> drivers move to do more shifts for better paying competitors
> not sure the B2C ones could make a similar transition as easily if circumstances called for it.
Source: https://www.investopedia.com/why-ipos-of-2019-won-t-crash-li...
Not really; there isn't the irrational exuberance that the dot com, housing, or bitcoin bubbles had. There aren't stories about people getting rich quick, new normals, etc.
> ...deficits over the last 20 years.
You're onto something here. There's definitely been an increase in government spending. The other thing going on is that there was a lot of quantitative easing following 2000 and 2008. There's another word for everything going up: inflation. Maybe that's what we're seeing, but government inflation metrics are missing it for some reason.
They're missing it because they're designed to miss it. If inflation was still calculated like it was in 1980 it'd be around 10%.
The changes in CPI calculation (continuous consumer basket adjustment, etc.) are well documented, well known in econometrics, and is considered a sane thing. (After all you can't really equivocate a TV from the 50s and a TV now.)
And while it's always possible to make better adjustments, shadowstats does not argue for this, it just argues against a strawman conspiracy.
https://moneymaven.io/economonitor/emerging-markets/deconstr...
"For example, a can of tomato sauce that cost $.25 at Piggly Wiggly in 1982 cost $.79 at my local market in early 2015. Starting from the 1982 price, the CPI predicts that it should cost $.61 in 2015 while ShadowStats predicts that it should cost $2.64. Starting from the 2015 price and working backwards, the CPI predicts that it should have cost $.32 in 1982 while ShadowStats predicts that is should have cost $.08. Based on these calculations, we see that the CPI underestimates inflation, as measured by the Tomato Sauce Index: The ratio of the 2015 predicted price of $.61 to the 2015 actual price, $.79, is .77, an underestimate of 23 percent. The ratio of the ShadowStats prediction to the actual price is 3.32, an overstatement of 223 percent. For tuna, both indexes overestimate inflation, the CPI by 34 percent and ShadowStats by 478 percent, and so on."
also: http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-...
And to address the "they miss it part". Well, probably most people don't buy stocks, and most people don't buy private equity limited partnership chunks, so ... CPI-U does not measure "asset bubbles".
I would counter that by saying that throwing money at companies that literally say they may never be profitable (Lyft, Uber), and valuing them at insanely high amounts is pretty irrational.
Granted, they could still be profitable and overvalued.
The problems we are seeing are very much socially driven (emptying of middle income jobs -> lower pressure in low income jobs -> increasing poverty -> no money for education and healthcare spending -> low income stressed disabled people turn to high-risk high-yield activities drugs & crime). Coupled with the current populist politics, it's no wonder the "economic outlook" is a bit gloomy.
Perhaps the government spending is the irrational exuberance this time.
The problem is that more and more people are dependent on gov transfers for part (or whole) of their income.
( https://fred.stlouisfed.org/graph/fredgraph.png?g=q5u )
Whereas growth benefits mostly the wealthy. ( https://fred.stlouisfed.org/graph/fredgraph.png?g=q5v )
And gov spending is less and less "productive", education spending is not increasing, whereas spending in simply population sustainment does.
Could you explain a bit what do you mean by this?
Check this out, 5th chart down on all the coutnries and their debts: https://democracyjournal.org/magazine/42/the-private-debt-cr...
It might not be so bad if it was just the US. But, most of all the major countries in the world all have a similar problem with deficits: France, England, Japan, and even China. All of their debts (public + private) are about 200% of GDP and over. But, what's most striking is the difference between 1980 and today. That massive increase shows that the level of spending we're accustomed to is not sustainable.
A wave of IPOs from companies that do nothing but burn money can only be seen as a forward indicator of trouble.
- DocuSign
- Dropbox
- Eventbrite
- Fitbit
- LendingClub
- LiveRamp
- New Relic
- Okta
- Salesforce
- Splunk
- Square
- Twilio
- Twitter
- Yelp
- Zendesk
- Zynga
- Wells Fargo
- Charles Schwab
- First Republic
- Pacific Gas & Electric
- Gap
- Williams-Sonoma
- Dolby
- McKesson (thx khuey; though apparently moving to Dallas soon)
- Castlight Health
- Stitch Fix
- PagerDuty
- Lyft
- Pinterest
- Levi Strauss (thx mykowebhn)
- Slack
- Uber
- AirBnB
- DoorDash (maybe?)
- Postmates (maybe?)
- Instacart (maybe?)
- Asana (maybe?)
EDIT: adding new ones as I/others think of them
Also, Stitch Fix IPO'd in 2017.
But yes, there are a ton of public companies in SF, both long term and recent IPOs.
aside: anyone else think Uber should buy DoorDash?
Asterisk is the Global HQ is in Sydney.
Add: Marin Software
Autodesk
Autodesk HQ is in San Rafael.
Few actual people are stupid enough to fall for this shell game, but the limited 401k options most companies offer all but guarantee some of your savings is going into these deadbeat companies.
Today there are 156"
I wonder what could have happened in that time frame? Perhaps the ubiquity of iPhones and Android devices which have opened up old business to new competition?
Hotels > Airbnb Taxis > Uber, Lyft FB > Snapchat PayPal > Stripe
And with the surge in new tech companies come more companies to service the tech
Pager duty, New relic, cloudera, zoom, mongo DB
And also how much has the internet population and usage grown between 2013 and present.
I'm not saying that the market isn't over heated, or that there won't be some companies that will face tough times in a liquidity crunch, but a bit less biased reporting would be nice.
But with media these days it's all about eyeballs and impressions so balanced reporting is for the 2000s.
- 4G / 3G internet access became widespread, meaning you could suddenly have access to a lot of internet bandwidth in each phone user's hands.
- Android and iOS made it easy to make applications that are almost as powerful as what a desktop application can do, which lead to many app driven ideas.
- Countries like India and China rapidly embraced the internet and have huge populations on the internet now / on the way to the internet.
- Machine learning really kicked off once GPUs made deep learning viable, this allows a lot of data to be processed and insights to be obtained.
Despite several notable IPOs, the overall rate of S-1 filings doesn't seem higher this year.
Don't get me wrong, people who invest in these should be doing their due diligence and investing accordingly but I also think that the companies are doing their best to put up a front to cash out now so the executives can get paid.
https://mediabiasfactcheck.com/the-economist/
For example, they endorsed both Democratic and Republican candidates for president in the past.
Even Karl Marx read The Economist, for what it’s worth.
I don't actually understand this. I personally find that following specific authors whose journalism I find of high quality is a lot more efficient use of my time than following publications. Why does The Economist make this needlessly difficult, and what's the benefit of doing so?
Some journalists use pseudonyms, for example Banyan, Butterwood: https://www.italki.com/question/377016
Edit: I'd say it has the effect of reducing the impact of ego on writing.
Exactly. Who emphasis should be on "is this true/ a good point?" over "is this someone I think I should agree with already?"
I'm fine with paywalls, but if you want to charge money for what you write, then just do it. Don't waste my bandwidth for something I'm not supposed to see. Put up a login page or something.