Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

The word I'm hearing is that this is going to start being the new normal for tech companies.

The market is starting to demand that companies that have huge multiples start to earn their multiples.

FB, GOOG, MSFT, APPL and CSCO are proabably all ok as they can hit their targets with relative ease and don't carry a burdensome multipel, but hype based companies like TWTR, LNKD and others are about to be in a world of hurt, I wouldn't want to be a shareholder in any of those companies:(

This is probably going to be especially painful for the SAAS companies that just IPO'd, I don't think they'll get much time to prove they are worth their multiples and they have the double whammy of coming out of employee lock up periods pretty soon.

AMZN is the one wild card, I would have thought their free pass expired long ago but they are the sole exception that I can think of.

EDIT to respond to the question about FB's multiple, Most people still believe that FB has the ability to turn on a switch and make more money, ie they are artificially making less than they could fro the sake of growth, just like AMZN.

I feel like the market somehow exacted its pound of flesh from AMZN recently when they revealed how much money they are making off of AWS. I can't imagine any other reason for wanting to do this other than to allay the fears of investors jittery over their perpetual operating losses.

Isn't this exactly what the last week of HBO's series Silicon Valley was about? Not getting valued too high because it may force your hand later?

Somehow, I found that storyline interesting in that such smart people could not grasp such a simple concept on their own.

I think simple concepts can naturally be hard to come up with unless you are thinking in the right context. When someone in that situation should be thinking in the context of what that means to the people they are beholden to, often it's the first time they've been in that situation (or more accurately it's foreign feeling enough that the parallels are missed) and are still seeing it as a metric of their personal worthiness as measured through their creation.

At least, that's my take on it. I don't have any real experience here, so I could be totally off.

Well, sure, if one is distracted or outside the context. But for one of them, that was his job. As for the leader of the group, the example of the problem was right there in front of him and he still didn't grasp it.

The reason I found it interesting is because I could see it actually happening. Of which, I'm sure it has.

When everyone is doing something contrary to your instincts, it can be hard to trust your instincts... I think it's pretty common, actually.

The last episode is the opposite, don't make revenues, this way expectations are limitless as opposed to making small revenues

Yes, but the character who gives that advice is very blatantly portrayed as a moron (by the way, does anyone know who are the inspirations for the character?)

The 'radio on the internet' bit seems to point to Mark Cuban being at least a partial inspiration.

It's a thinly veiled Mark Cuban, who sold his radio on the internet startup to Yahoo and has since managed to increase his net worth from 2.5 billion dollars to a whopping 2.7 billion dollars.

To be fair, he also owns a basketball team.

A measly $200,000,000

Exactly. Then you can tell investors you are "pre-revenue"

I think that advice is out-of-date now - and in Silicon Valley, the advice was given by "literally the worst person in the world", so I didn't see it as being advice anyone was meant to take seriously.

Not at all. This is probably the one thing they've gotten the most right so far.

It's not unique to tech stocks - it's very deep part of investor psychology.

E.g. in a romantic relationship, people being far more enthusiastic and more willing to invest in a partner with high perceived future potential earning and other value, than in a partner who's already clearly laid out all their cards.

In adtech, perception has been a big deal. If you are a media company you get one multiple. If you are a tech company you get a much higher multiple. As such, most adtech companies try very hard to market themselves as tech. Eg. "platform" is much more valuable than "network" even though most fall somewhere in between.

I wonder if that distinction will fade in line with your prediction.

Are you sure about FB? Their price-earnings ratio is almost at 80 (compared to Google's 26, Apple's 15, and Cisco's 17)

FB keeps consistently growing quarter over quarter, and advertisers are still catching up with the fact that mobile advertising coupled with conversion tracking on FB works extremely well. FB's EBITDA nearly doubled from ~700MM to 1.4B in just 6 months![0] I don't know many tech companies that have done that much of a delta and absolute value in combination.

[0] - http://www.wikinvest.com/stock/Facebook_%28FB%29/Data/EBITDA

You really think LNKD is hyped? They make money, and lots of it. They're one of the few companies in the valley that have a solid business plan and footing.

Hmm? Google Finance says they made about $31M last year.

The article we're responding to references the $43M they lost this quarter

Having missed their last forecast, they're now forecasting earnings of $1.90 per share this year. They'll need to keep that rate of making money up for another ~130 years to justify their post-slide share price even at a zero discount rate. To put things into perspective, 130 years ago, electric light bulbs were a novelty.

As you hinted, they're far more aggressive than most companies in the Valley about actually trying to make money, but that just underlines how hideously overvalued they are.

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