[learc83]

There will inevitably be a downturn. When people say "it's different this time" they don't mean that there can never be a downturn, they mean that when it happens can't be predicted by looking at past events. And they mean that when it happens it will be different--perhaps not as bad.

There is a huge difference between this time and last time. The internet is much more mature for one. People depend on web apps now in a way that's not going to change just because the market swings.

Another thing that's different is that people spend more time on software distractions when the economy tanks, not less, so a global downturn is likely to drive consumer spending away from the real world into the virtual.

[zzalpha]

There is a huge difference between this time and last time.

Is it, though?

Instead of overvalued companies based on the theory of "put it on the internet", we have overvalued companies based on the theory of "put it on the internet and get a billion users". Companies that, by and large, struggle to break even without telling a compelling story for how they'll monetize (let alone achieve or retain) that huge projected subscriber base.

For those that have a semi-believable revenue model (e.g., Uber), they make their money as rentiers, trying to scrape money off the top by matchmaking between actual service providers and customers... and in a lot of cases, they do so while violating labour laws vis a vis contractors (and in a lot of cases, regulations in the industry they're attempting to disrupt).

I know the Pollyanna's around here want to insist that this time is different. That these companies have fundamentals now! Except, I don't see it. It looks like the same billion dollar gimmicks to me, just a decade and a half further down the road.

[austenallred]

> Companies that, by and large, struggle to break even without telling a compelling story for how they'll monetize (let alone achieve or retain) that huge projected subscriber base.

The companies we're talking about in this discussion, late-stage (Series D and on) startups, already have a large and quickly growing user base. And, yes, most of them have real revenue.

There are, of course, some that don't. Take Snapchat for example. Is it really that difficult to see how Snapchat will monetize?

Everyone worried about whether or not Facebook would ever be able to monetize, but it brought in $4 Billion in revenue last quarter. Last quarter! Twitter isn't growing as quickly as some would like (only 4 million new users per quarter) and has its own share of problems, but it's still on track to bring in ~$2 Billion in revenue this year. It lowered revenue projections for the last quarter of 2015... to $650-710 million.

You mention Uber: Uber's gross revenue is expected to hit a run rate of about $10 billion by the end of next year. Even with Uber only taking 20% (=$2B of that), that's $2 billion in revenue. And they're still growing 300% year over year. That is a holy shit number.

So, yes, there is objectively a big difference between this time and last time.

Could those companies be overvalued? Certainly. Do they need to start bringing in more profit? Yes, but even the most bearish investors admit that takes a lot of time. There may even be a downturn in the market, but it is not going to be 2000 all over again, when every tech company with the exception of a couple vanishes overnight into thin air.

[zzalpha]

Everyone worried about whether or not Facebook would ever be able to monetize, but it brought in $4 Billion in revenue last quarter. Last quarter!

So let's do a little math. From this:

http://www.forbes.com/sites/kathleenchaykowski/2015/04/22/fa...

We see 1.44 billion monthly active users. That translates to about $12 a year per user.

Think about that.

Now think about the potential growth curve.

And you're telling me I should be impressed?

Now, if they can find a way to continue to push that per-user revenue number up, great, let's see how that goes. But their numbers today only show great promise.

Meanwhile, using Facebook as your benchmark is incredibly disingenuous. Of all the internet companies today, they have the largest subscriber base, the greatest retention, and the greatest daily active engagement.

Snapchat doesn't come close.

Twitter isn't growing as quickly as some would like (only 4 million new users per quarter) and has its own share of problems, but it's still on track to bring in ~$2 Billion in revenue this year.

Twitter can't break even. They report 320MM monthly active users which means they're pulling in about $7 per user per year in revenues, less than Facebook, and with a growth curve that's even more alarming.

Again, you're not seeing the forest for the trees, here.

Uber's gross revenue is expected to hit a run rate of about $10 billion by the end of next year.

And, mark my words, in 5 years they will be shut down by regulators and class action lawsuits as folks realize they're making $10B a year on the backs of illegal contract workers.

[austenallred]

> We see 1.44 billion monthly active users. That translates to about $12 a year per user.

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion.

> Twitter can't break even. They report 320MM monthly active users which means they're pulling in about $7 per user per year in revenues, less than Facebook, and with a growth curve that's even more alarming.

Twitter could fire 90% of its staff today and keep bringing in that same amount of revenue, being wildly profitable. But it doesn't because it's still trying to grow quickly. It also just barely started turning on revenue.

You're actually the one thinking about this the wrong way. Profit alone is just a bad way to value quickly growing companies, as it never carries all of the nuance (see Amazon - http://a16z.com/2014/09/05/why-amazon-has-no-profits-and-why...).

You're also not appreciating the growth. There's a reason PG says "startups = growth"; because growing 25% month over month compounds and gets really big really fast.

> And, mark my words, in 5 years [uber] will be shut down by regulators and class action lawsuits as folks realize they're making $10B a year on the backs of illegal contract workers.

In most cities they're not "illegal contract workers" even today. I'd bet good money that in 5 years few, if any cities, would call Uber drivers "illegal contract workers."

[zzalpha]

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion.

Yup, that's my bad, sorry.

That said, unless they can continue to grow that number, their trajectory is based on subscriber growth, and that must necessarily flatten out.

Profit alone is just a bad way to value quickly growing companies

Agreed.

But a company that can't not lose money is not well positioned.

And the fact that Twitter's growth trajectory has flattened out only makes me more nervous.

In most cities they're not "illegal contract workers" even today

You're right.

They're illegal across the country according to federal labor regulations.

Uber and its ilk are almost certainly illegally classifying their workforce as contractors when they should be employees. It's actually a really easy line to cross, and if you ever work as an independent contractor, it's worth familiarizing yourself with the regulations as it obviously has significant tax implications, among other things.

This is the basis for this class action: http://uberlawsuit.com/

When that hammer comes down, Uber's profits will evaporate. They're also very likely to face similar legal action in other countries with similar labor protections (e.g. Canada).

And that's ignoring their violating taxi regulations all over the place (though I admit I have more sympathy for them in that regard, as I generally view those regulations as anti-competitive).

[HillaryBriss]

Sure ... but ... what about the fact that consumers fucking LOVE to use Uber & Lyft? It's like marijuana or potato chips made of heroin. People can't get enough of that shit.

How popular will the politicians (e.g. state attorney generals) who push to destroy those businesses be with consumers/voters?

We don't have to look around very hard to see laws/regulations that go unenforced because politicians/regulators fear voter backlash.