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Comment by iteratethis | Hacker News Reader

Yep, it's a high interest rate phenomenon. Investors want to see profitability.

But it's also a problem unique to trillion dollar companies: finding growth. If you have a money printer of $280B per year, how do you find growth that moves the needle?

For new product development, you'd need to launch a product that brings in revenue of say $20B, otherwise it's just not that interesting.

Imagine how hard it is to launch a new product like that? If you'd have a billion users (which is absurdly hard for a new product), you'd then need to monetize them for $20 per year per user. In a saturated competitive environment where users don't want to pay.

Hence, the more common strategy is to turn some dials on the existing money printer. Just increase ads.

That's why FB's Metaverse bet wasn't crazy at all. You make $100B+, social media is stagnating, and you need a huge new revenue stream. They don't really exist. You have to go crazy on big bets.

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> it's a high interest rate phenomenon

Well, it's more of an interest rate change phenomenon.

All companies are currently overvalued by absurd amounts, but the computer-related ones have it dialed a few dozen notches above "absurd". Things became this way because of the zero interest rate (and the expectation that it was permanent), but it's not sustainable anymore.

> All companies are currently overvalued by absurd amounts, but the computer-related ones have it dialed a few dozen notches above "absurd".

Google's P/E is 25.6

S&P 500 is at 24.59

DJIA is at 26.35

There are exactly 4 'computer' companies among the 30 companies that make up the DJIA.

If you're looking for overvalued, that would be Tesla at 70.3, or Amazon (Who reinvests aggressively) at 75.6.

Why do they have to grow, though? Can't they just be profitable? They can just pay out dividends like coca cola, no?

A not terribly uncommon belief is that continuous growth (pick your metric) is the raison d'être of all entities operating in a capitalist society, and so achieving and maintaining some high level of profitability and then staying there means that you and your company are failing to do their job.

But "growth" is a moving and indulgent target. For some, increasing profits isn't the growth that matters. Rather, increasing the rate at which profits are increasing is the true metric. So even vastly increased profits can still be a form of failure that requires more actions be taken to wring more money out of the platform and its users.

A stable company that pays out their profits as dividends is reasonably valued at some x*profits.

A company that reinvests these profits in things which investors believe will result in growth is valued x*future_profits, which is much larger - so if the leadership of a 'growth company' would announce that they're now a 'stable company' just paying out dividends, they would destroy most of the stock value of their investors, and would be considered an absolute failure of that leadership, since everyone involved has a strong incentive to replace them with someone who can make it (at least in the eyes of public) a 'growth company' again, doubling or tripling its value for the same revenue.

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