I'm not surprised at all. Etsy used to be user based and hand made. Now it's just another market place. They still act like they try to enforce "non-mass-produced" but there are countless examples of the opposite being true. Places where people have directly reported instances of this and the problem is still present.
I think the problem is that they stopped caring about their user base and, therefore, became less ubiquitous and people saw that and were like "oh.. time to value them lower.."
An alernative hypothesis is that etsy was a predominently female community that (kind of conjecture) used to have a comminty driven social aspect. As it became more of a market place, and less of about discovery and community, most of those people moved to the "better version" of etsy.
Now, pinterest is the best of both worlds, a place full of like minded people driven by discovery of cool things (what etsy was) and the marketplace is like central.
I suppose gender doesn't matter, but it is worth mentioning these sites have a greater population of women and most of the products I have seen are jewelry, clothing or crafts that are made by women and likely bought by their peers.
I suspect, that as it became less trendy and creative, and more of a store, most of the top people left and went to pinterest. When a community has a their top talent leave, and their competitors are more in line with their customers expectations, then thay community is through.
Pinterest isnt something I use, but I have seen some cool designs and for discovery of certain things, it seems great.
Tl; dr, as an outsider, i think thar pinterest out etsy'd etsy
But Etsy was always a marketplace. It was never a curation site per se. Unless I'm missing something here? If anything, I see Etsy and Pinterest as much more complementary than competitive.
I, again never really used them, but I think it was likely a case of Etsy not realizing they were pinterest.
People went to see fashion, crafts and home made cool things. They started their own stores and shared in that experience.
Etsy never cspitalized on this. Pinterest, is the opposite. It was meant as an awesome place to find cool stuff, then, while people are admiring it, they did a deal with stripe.
Now Patrick Collison brings them up sometimes in interviews, and both Collisons did a class with Ben Silberman in Sam Altmans stanford class.
So, point is Pinterest attracted all the people who made cool shit. Etsy attracted all the people who bought it.
It's an interesting way to look at it, and I guess I'd never thought of it that way. I'm still not convinced Pinterest and Etsy are substitutes, or at least not that they always have been. But I do agree that (from what I can tell) Pinterest is the more ambitious and strategic company, and that it has Etsy in a corner it can easily choose to close off at this stage in the game.
Or they did, but there was pressure to keep growing because investors need to cash out of their over valuation. There's nothing wrong with having a company that serves a market and pays all its people a good wage. Unless of course you over valued a company and invested to much money to get paid out in your 5 year time frame then that's a really shitty thing.
They lost their 'handmade' direction after they let the vintage people back in. For a short time they removed all of the stores that were selling curated collections instead of something original.
Within the crafting world, this was the beginning of the end -- which was a few years back.
It's not surprising to see them slowly fading away. They haven't progressed. Back in the early days you had to get in with the 'chatting Mom's' if you wanted to gain some good traction. Now its just like any other ecom platform.
My opinion is that the tech sector has greatly expanded since 2000, not just in amount of investment available, but also types of business tech companies are actually in.
So maybe there is a web/ad bubble and it might pop, but how much that affects individual company is more nuanced.
Unsophisticated investors might still lump Google/Twitter/Tesla/AMD into the same "tech sector", but they will find the signal they receive is very mixed and difficult to analyze.
i have been thinking about this a lot. Peter Theil talks a lot about paypal when they were burning cash, but they had finally started to get the business fundamentals together. He calculated, i am approximating but it was close to, 80% of the companies worth came after 20 years.
My thinking is that public markets are shitty, so almost all of the value capture takes place way before a company is worth it, it stays private a long time, goes public, then slowly grows for 5 years fails to adapt and dies. Look at google. They know search is about to change majorly, they have already spun into a meta-architecture. Doing things quickly, capturing that value, and then adapting is the only way to survive. If you do adapt enough to survive, you are a conpletely different conpany than when you started. If you dont, all the value has been captured by provate markets, the company gets sluggish, and isnt that profitable for "retail investors".
Amazon sort of the one exception. They saw the world how it is now over 10+ years ago, and are still competing and incrsting in growth because thats how you win.
You have to own all the infrastructure, so you dont have to work as hard.
Either way, uber is more like ebay than like lyft. Sectors have subsectors because everything is close to winner take all.
You analyze by looking at what the smart people are doung.
Stripe = infrastructure
Aws = end to end automated everything
Google is organizing as a think tank/incubator
Ycombinator is funding smart crazy people who move fast.
> almost all of the value capture takes place way before a company is worth it
Then almost all of the investment risk must similarly take place way before a company is "worth it". Unless you are proposing the divorce of expected risk from expected return.
I mentioned this below, but I disagree. I am not talking about Y Combinator or pre-seed stage funding. Companies are raising E rounds. Shitty companies are raising 10m a rounds.
* There are a shitty companies that are getting funding say raising ~20m in an A round.
* There are publicly traded companies that are in bad shape, GE, Twitter, Dropbox, Evernote can't even make it to the IPO and Yahoo.
* In between this, is where public markets were useful. They provided large scale liquidity for companies that needed to expand (often globally). Similarly, public investors needed to deploy excess capital to save for their futures.
* Now, the stock market is full of failing legacy companies and the pipeline of good companies is diverted. I am pretty bullish on Uber for example. While technically the IPO wouldn't touch the >7-10 trillion in the s & p, do you notice anything odd about this graph?[0] Bad companies are going public and failing, the pipeline of good companies are mostly staying private. Pricing, risk and market calibration are so out of wack that the last decade looks like this ^V^v so, not really sure how to make a risk
tl;dr I would feel more comfortable participating in Ubers previous funding round than buying apple, one of the s&p toip 50.
I was going to break down risk adjusted return, but I am not phenomenal at math nor finance, but again I found it pretty fucking insane. The sharpe ratio is like
"Risk Free Rate"
( 0-0.3 - "average return" ) / stdDev
So basically, in my super (likely incorrect) view, you have a pool of shitty assets that are largely correlated in a massively volatile timeperiod. This number is your control.
Then you measure against the degree you will beat the risk free rate, a negative number basically. Seems insane, but never was top in finance.
My personal opinion is that open sourcing googlebot[0] and tensorflow, as well as a the numerous other tools like elastic search and frameworks like hadoop make it pretty easy to make narrow search tools.
So someone like me, a pretty shitty programmer, can use an language built on top of googlebot, like nodejs, and just index the stuff I care about and instead of that information being returned to google, I can just send it back to bots viewport directly and not even see the webpage, just the info if I want.
The problem is discovery (what google solved in 1999), no one knew where to find websites, like not even info, just what sites even were on the web. This is a huge pain point again because while there are a lot of great websites there are a ton of shitty ones. This is pretty obvious if you look at sites like reddit or hacker news. They are developed around the idea of aggregating good resources because there are so many it is overwhelming.
So, I think, that of the 50% of the people that are already running googlebot, some subset will start probably using it to get info they care about. Eventually, someone will write code you can use to make this easier for normal people, and then google whill either sell the silos of info to them instead of advertising, or use it in it's new meta structure to solve big problems.
I definitely agree on your points about the majority of the web being low quality noise. Not just in a "humans produce garbage" sense but also that various SEO and marketing techniques have created a sea of automatically generated nonsense content that search engines now have to wade through.
I also find searching for anything remotely niche has become extremely difficult because of this. Example being finding instructions on how to install some bike parts today. There were articles about the specific parts eventually, but only after significant iterations of my search terms and wading through all the matches from people targeting those keywords to sell product.
I feel like Google specifically are failing to wade through the sea of noise, and as a result it's becoming less and less useful.
It works well for things like programming troubleshooting, because we have high signal resources (stack overflow, for example) that often have the answers we need. But for anything outside of developer specific topics I usually have a really hard time finding anything useful and not spammy.
I now rely on having stumbled on some good sources, and sticking to reading those, rather than googling subject matters these days.
HN, Reddit and various news and tech sites curate content as you said, but the problem is that this creates a bubble and the beautiful world of exploration and learning that the web was all about disappears.
I am excited to see how we solve this problem, and who solves it.
In regards to Google Search going away, I feel like even if their search engine failed, the AdSense network would live on, and that is where the majority of their income comes from.
I'm not sure if the majority of it comes from Network ads (ads displayed on other sites) or search ads (ads displayed in their search engine). That might be informative of where they plan to focus their energies over the coming decades.
> I feel like Google specifically are failing to wade through the sea of noise, and as a result it's becoming less and less useful.
A problem is "useful to google" means serving you all those sites trying to sell you stuff and keeping you "on the web" longer so they can show you more ads and extract more data from your activities. They have to balance that with actually giving you what is useful to you.
I don't have the answer but for my experience, I nearly don't use search engines anymore since approximately 2 months.
I've got some handful websites for what I want to do with a computer and that's all. By the way, I search more in bookstores than on internet (maybe for quality not quantity, don't know).
Web disappoints me, kind of full of emptiness now. I do not think it's representative.
I am interested in your comment about search changing drastically. How do you feel search is changing and how do you see that affecting Google and other large players?
edit: I am interested, to get feed back on this positive or negative. I, and likely google, see the internet as a big RSS feed. Right now, companies are starting to crack down on bots, except google, but as discovery changes I think this will too. Generally curious about this.
I studied economics in school, however I was always a sub par student.
The market is very very efficient at what it is optimized to do, I don't think "fair" has any objective meaning in a diff of the bid ask spread, but I get your point.
To drill down on my assumptions, the market is optimized to price things based on what people are willing to pay which is supply v. demand, i am not disputing that.
What I am saying is that the price people pay for things is based on information which is distributed highly asymetrically.
Information is siloed efficiently by large brokers (of information) and even then, is largely narrow. Barriers to entry have never been lower here, but also facing massive follow on lag time.
You can build a search engine than google could when it started, but you will be using mostly their tools e.g webkit, v8, big query, tensorflow or something by a similar entity or OSS.
So pricing information is based on what uninformed people are doing in a market. So the price is not in line with reality to the extent of how the same actors would act with all people knowing the same thing.
Everyone on an airplane pays a different price for their seat. That, in my eyes, is "fair" but unimportant.
However, public markets serve as liquidity for companies. I have been asking myself what the point of them really is.
Volume of traded firms shares must keep being traded, because people need liquidity. However, companies no longer need public markets to get started and grow. So investors obviously expect an exit, but companies have shorter lifespans, they also are no longer insulated from global macro trends.
Obviously, "public markets" will end soon and be replaced with "markets". Trade restrictions will get lifted as markets open globally. People will still not know how to participate and this will be bad short term. Long term good obviously.
So I guess what I am saying is, a large part of the economy is a private market, public markets are more risky, less valuable and cater to people who have an asymmetrical advantage of eithet information or positioning, so why the fuck would anyone bet on them? Because a diversified portfolio has gone up for the last 10 years? Makes no sense, they aren't nearly as useful as they once were.
The pricing mechanism of markets is no longer calibrated correctly.
Edit: meant to say that was the bubble. Markets have to exist because companies are already sold into them, however, good companies don't go public but people keep putting more money into the bad companies equity. So something line twitter coyld fail, or even lehman, GE isnt even faring that well. So these mediocre assets are being driven up as people put money into their shares, but their discretionary spending goes to private companies. As I said, i am not like an economist or something, so I dont really understand what the fuck is going on, but 1) it seems pretty insane and 2) it seems like no one else has any idea either.
The risk of the drop (at the time of lockup expiration) is priced into the stock before the lockup expires. So, if the lockups expire, and there is no big sell-off then, the stock price might go up.
I wouldn't be surprised if Etsy is acquired now that the share price is beaten down. Seems like a good fit for eBay (it would provide much needed relevance) or Amazon. It's a good brand name, but not much else.
The tech and talent at Etsy would bring quite a bit of value to any company that were to acquire them. Their tech culture is top notch. I've followed their blog (https://codeascraft.com/) for a couple years now and have gained a ton of knowledge from it.
Neither of them have marketplaces for custom made goods (for the most part at least compared to etsy) and both are in competition with each other to expand their marketplaces to as far as they can go.
Seems like it would be a good fit to me. I'm not sure how it ultimately gets integrated it (maybe it doesn't?).
I didn't even know about that and neither did my wife who is obsessed with etsy. I'm not sure Amazon by itself is going to draw in the huge amount of users etsy as brought in; I could easily see etsy augmenting their existing offering.
Yep, IPOs are the new down rounds. The founders/early investors sell shares on the private secondary market pre-IPO, leaving the public and the employees holding the bag after the IPO.
Why would that leave "the public" holding the bag? The IPO itself is a down round, which means the public is buying at a lower and, by that view, more "correct" price. But the drop in value has already happened - the public isn't losing out unless there's a further price drop, which is not what is being talked about and won't necessarily happen.
The ones losing out are, in some cases, the employees, and in some cases, the last stage investors. But the investors are usually investing in ways that more closely mimic debt than equity, and usually have ratchets to protect themselves.
And they're actually a better value today thanks to the proper correction, than they were at the point of IPO, despite what the analysts and pumpers (or shorts) would tell you.
Now they're trading for 2.x times sales for fiscal 2015. They have 1/3 of their market cap in cash. And they're accumulating cash from operations rather than burning it. The value proposition on the stock is dramatically higher than it was when the hype was on the moon.
Why does this have anything to do with it's status as a B-corp, rather than other market pressures on Etsy specifically, including Amazon's efforts in the space?
Etsy is a test, in some ways, to see if the b corp model can fit in a large, publicly traded company. The hope was that the b corp model would break out of its niche, and be applicable more globally.
Etsy's problem is not that it is a B Corp, it's that it loses money and has slowing growth (which means it will likely lose a lot more money!). If they had great numbers it could be run as a sketchy holding company in the Cayman islands and still attract investors.
Can you expand on why this a bad sign for B Corps more so then C Corps? Honest question. Before reading the link I did not know the difference between B and C.
A simple explanation is B-corps can have a charter which is at odds with the interests of shareholders while C-corps are fully aligned with 'maximizing shareholder value'
e.g. "I've created a B-corp, named Betsy, which has the distinct mission of making it viable for more people to choose craftsmanship as a career. I cannot be sued for adhering to my charter in good faith so one thing I can offer all sellers is an insurance plan even if this move has a net negative impact on profit."
This can be contrasted to a C-corp in which its officers could technically be sued by acting in ways which are value or profit-destroying for the firm.
I don't know the details of the Etsy's financial situation, so my initial comment seems a bit flippant, having re-read it.
But regardless, Etsy was a high profile B corp IPO, so I expect people to draw conclusions from its success or failure regarding the viability of B corps in public equity markets. (Warby Parker and Patagonia are two other B corps.)
After all, public companies are legally obligated to maximize shareholder value.
speciality ecommerce has always been a moody market and a company like Etsy getting traded at this value is still just sentimental value. The company has had negative margins for a while, along with negative returns on all it's assets.
Operating cash flow is a mere 2% of the current market cap. This defines shambles unless it can really turn it's fortune around in '16-17.
etsy is clear case of poor management, just taking a brief look at their financial statements it is clear they are doing something clearly wrong. Their revenue is growing but their expenses are growing at the same rate so they remain unprofitable. from 2014 to 2015 revenue grew from 29 million to 45 million per quarter while general expenses grew from 22 million to 31 million. Amazon is another company that does this but at least they have the sense to keep the company slightly in the black to slowly gain small amount of cash reserves, etsy is just burning through their capital for no reason, they earn plenty of revenue to be able to turn a profit
A couple years ago I met with the guy who runs tech there and he said they had 150 developers....! How many do they have now and what the heck are they working on?
They can obviously make money by raising a transaction fee a little bit from 3.5% to maybe 5%-7%. eBay has done it to 10% + PayPal fees and they are making billions in net profits.
To be clear, it's lost XX% of it's market cap. The market cap is a knowingly-flawed assessment of earnings potential for a company. Its actual value is probably unchanged.
Market cap is just value of a single share * number of shares outstanding. Do you have a better way of valuing a publicly-traded company?
When you say "its actual value is probably unchanged", what value are you talking about?
If you think there is a disconnect between share price and value (however you're measuring that), then it is an excellent opportunity to arbitrage an inefficient market.
> Do you have a better way of valuing a publicly-traded company?
I do, but it involves time travel. In 1981, Shiller published "Do Stock Prices Move Too Much to be Justified by Subsequent Dividends?" ( https://www.aeaweb.org/aer/top20/71.3.421-436.pdf ) in which he compares index prices to their ten year dividend earnings, ex post. Volatility of prices is high, but the dividend streams are not.
What this suggests is that price tends to react to short term news far more strongly than dividends would suggest is reasonable. What it doesn't tell us is whether the shift in price is diverging from reality, or converging on it.
The way I read his comment was a difference between perceived value and actual value. Market share is equivalent to perceived value, not actual value. So the comment was remarking that the drop in share price could be the result of inflated expectations becoming more realistic rather than a loss of actual value of the company.
The biggest difference between perceived and actual value that I'm aware of is the tulip mania that early 1600s. In hindsight, it's pretty obvious that flowers didn't become less valuable in the short time period between the height and the collapse. Any utility or purpose they had, other than resale, was retained in its entirety. But the price difference was massive. There are many who believe we're in our own era of unicorn mania where it will become apparent, again in hindsight, that they were never as valuable as people made them out to be.
What are you talking about? The value to the people is what they will pay for it. If nobody is buying it at a certain price, then there is nobody that feels it has value at or above that price. There is no 'real value' of something vs its market value.
I think the distinction being made is the value of the stock vs the value of the company, which is not always perfectly in sync. That's why, at any given time, a stock can be undervalued or overvalued. For example, I think you'd be hard pressed to state that the value of a stock right before a company announces unexpected losses is representative of the actual value of the company. The perceived value, prior to the announcement, is too high.
Sometimes things have an intrinsic value, often because of some utility that they provide. Sometimes the only value is the belief that someone else will pay more for it. [1] When it's the latter there's a difference between the real value and the perceived value. This is why we use the term "correction" to describe a situation where the perceived price falls to match the "correct" price.
The biggest difference between perceived and actual value that I'm aware of is the tulip mania that early 1600s. In hindsight, it's pretty obvious that flowers didn't become less valuable in the short time period between the height and the collapse. Any utility or purpose they had, other than resale, was retained in its entirety.
This wouldn't apply to Bitcoin. Any utility or purpose in a bitcoin is entirely in terms of its perceived value.
I _know_ there's a disconnect between the share price and the value, I just don't know what direction it's going to go in. This is why straddles are so much fun. :)
I agree with you, and something I am actively working on. That said, anecdotally, the market seems to overvalue many things a medium amount, and greatly undervalue a small few things by an order of magnitude.
So while I would say, sure, the market cap of a company, in what could pitentially br another downturn, is not exactly precision science, this company is in bad shape.
Huge successful direct conpetitor: pinterest.
Massive successful competitors generally like the amazon, the entire internet, and most flea markets and shops.
Negative trending community; shrinking
Not profitable
Publicly traded.
also, on a final point. Even when markets are wrong, which I dont think is the case here,they can become correct by driving the company the direction they expect it to go.
So on balance, you're correct. Specifically, I wouldn't buy their stock.
I don't think this has much to do with it. Amazon's attempt was really half-assed (classic Amazon, to be honest). The only mention of Handmade on the Amazon homepage is in the "Search by Category" dropdown.
The real issue in my opinion is that Etsy discovered that they couldn't keep growing without opening their doors to cheap non-handmade shit. Which they've done. And their search/discoverability is absolutely awful.
My partner lists her truly handmade products on Etsy but only as an afterthought. As the amount of garbage on Etsy has increased, her views/sales have dropped. She has put all of her effort into getting sales through her own website, where at least she's in control.
Speaking with some knowledge of the company, it boggles the mind a little that they failed to snap up Shopify (or more likely one of that company's scrappier competitors) when Etsy got like $27M in 2008. Every single time Etsy didn't help a seller set up their own e-commerce site, someone else did, and this happened hundreds of thousands of times. And is still happening.
But Etsy struggled with leadership and technical problems in those days that were really serious, and not easily solved.
But in the early days many Etsy sellers didn't have their own e-commerce sites. A lot of them didn't even have websites outside of Etsy, often just a Facebook page. I'm not sure that's changed much.
You're mistaken. Etsy was for many people their first steps at e-commerce, but every seller who made sales on Etsy has asked themselves "What about all the people not on Etsy? How do I reach them?".
In 2005 Etsy's advantage was that creating your own standalone shop was hard, expensive, and ineffective. They shuffled CEO's while Shopify, BigCartel, WooCommerce, BigCommerce, and many others solved those problems. And Kickstarter proved you could make a lot of money without losing your cool indie cred.
There has always been a disconnect between what Etsy wanted to be (and there have been multiple versions of that) and what it's sellers (who are its customers) wanted. That grew into a chasm so big that Amazon saw light shining through it.
It would be interesting to see data to support whether this hypothesis holds up.
I have two gut feelings:
1. Hobbyist Etsy sellers don't dedicate the time and/or lack the business savvy to be running additional sales channels outside of Etsy. Additionally, even setting up a Shopify, etc. store requires some technical ability that you or I take for granted.
2. Semi-professional Etsy sellers, for example, those coming from operating eBay or Amazon Stores, were already using their other channels before Etsy. So they were sophisticated enough that it was cheap/easy to have someone whip up an osCommerce + PayPal site for them. I did this personally for a few clients already successfully selling on forums between 2005-2008.
The stock should trade at $2 if you look at their financials. Growth stalled a while back. Etsy will never be able to compete with Pinterest. This is a $100 million dollar company in the guise of $1b. Going the same way as gilt group.
All comes down to Monetization really.....If you dont find a good way to make a profit stock price will fall. Investors will only wait a certain amount of time before losing faith and interest.
as a two-sided marketplace, etsy got a wrong balance between vendors and buyers... Last time I did read they speaking about making a lot of money offering vendors' services... They abandoned the crowdsource, the crowd abandoned them..
Also, Wayfair hasn't seen a huge appreciation and TripAdvisor has been around since 2000 (admittedly, Yelp was founded in 2004). And HubSpot and Wayfair are based in Boston, and have been relatively underhyped.
Facebook, however, has been demonstrably successful since going public, despite the massive SV hype. Zuckerberg and his team deserve full credit for delivering on a successful mobile monetization strategy and making some great acquisitions (particularly Instagram, given its acquisition price and its estimated valuation now.)
All fair points! Though I'd argue that ecommerce has been challenging—Zulilly went from IPO to salvage sale in about a year, compared to that Wayfair's slow but steady growth is a success!
The TripAdvisor/Yelp comp is great—they're direct competitors. TA also didn't really launch in its current form until 2002 so it's not as unfair as it appears on first glance!
I just test drove a TSLA car today. I "summoned" the car from its parking spot. I then drove around town (in insane mode). Turned on autopilot and the car drove down the highway by itself (changing lanes when directed). Went back and then car perpendicular parked itself.
Soon we will see uber, airbnb and dropbox added to this list. The problem is the new VC-funded startup model is a sham to rip off the public.
Basically build a bunch of hype around fad-based, unprofitable companies with unsustainable business models and capture massive valuation of ~50x sales before going IPO and then insiders dump all the overvalued shares on the naive dumb money and only stick around long enough to dump the majority of their stake by SEC regulations. Then proceed to shout about how you changed the world and how it wasn't for the money from your yacht.
Twitter? No good way to monetize. Groupon? Failed to monetize effectively after virality faded and without a moat competitors did the same thing. Yelp? A web version of the BBB protection scheme whose profit comes from the shake down protection racket against small businesses, not from users. Zynga had no moat and other companies quickly did the same thing with much leaner overhead, like King and a dozen other cheap but profitable game makers. Box was just overvalued for what it is.
On the flip side, every time someone takes an Uber or rents a room on AirBnb, they pay the company.
As in, those companies accept money for every transaction and profit on them.
Twitter, box, groupon, yelp don't do that. And Dropbox doesn't and they aren't publicly traded and if they did sell stock it would probably be overvalued and shrink over time like Box.
I'll concede that Uber and Airbnb business models are stronger than the others, but they are still massively overvalued based on near future growth prospects. Those two will probably succeed in the long run, but they still won't be good stock picks
Agree. Airbnb's valuation is very close to eBay's. So, that means that it's expected that in the near future AirBnB will generate at least $2-3 billion in net profits per year. Actually, it would have to be more than that, because investors expect even higher valuation on IPO. Peter Thiel stated he thinks AirBnB will be $100+ billion company, which would imply he expects at least $7 billion after tax profits in the near future.
Let's compare eBay to AirBnB.
eBay incorporated in 1996, AirBnB in 2008. After 6 years of existing, eBay's revenue in 2002 was $1.21 billion[profitable]. AirBnB's revenue after 6 years is $400+ million[not profitable].
Now, eBay got that revenue+profits by 2002 when:
> (1) there were only few hundred million people online - 7x less than now. Slow internet connection, ugly websites, no mobile.
> (2) people were somewhat insecure about transacting online and paying was pain in the ass.
> (3) they were only popular in the US, UK, AU and had recently entered Germany.
Compare that to AirBnB, which after the same number of years operates in environment where:
> (1) there are over 3 billion people online.
> (2) payments online are very common(booking hotels pioneered by other companies) and easy.
> (3) says it operates in 190 countries, 20+ languages.
Even after all these advantages, they only got 1/3 of eBay's revenue in 2002 with the same current valuation.
Box is probably a little undervalued since they are trading at only 3x their revenue, despite beating analyst expectation for every quarter since IPO. The rest of the cloud/SAAS sector are trading at about 8x-10x in comparison. Dropbox, on the other hand, is valued at 25-30x their revenue, so entirely different animal altogether.
I think it comes down to funding, marketing, development and revenue models. Many companies succeed in funding, then effectively jump the shark in terms of marketing spend and try to massively scale their developer teams in order to increase feature churn, which has the opposite effect a lot of times, and then they've burned through all the cash before they can handle the scaling.
Other companies don't go full board, with more conservative growth in terms of features, but can scale more customers without the draw of huge marketing or in some cases smarter marketing. Viral-peer marketing works as long as your conversion out-paces your free sign-ups. I don't have any insights into Dropbox, but can say they're probably fine. There really isn't great competition in this space.. there's competition, but none of the cross-platform options are as good or at least not clearly better.
> On the flip side, every time someone takes an Uber or rents a room on AirBnb, they pay the company.
Yes, but Uber and AirBnB do not have (from a technical perspective) innovative products, nor strong lock-in businessmodels. Everybody could start a competitor. In fact, Uber faces a lot of competition already; see e.g. [1], [2].
Their lock-in is their network effects. Airbnb has a huge selection of locations in many major cities around the world. Uber has an incredible number of drivers and riders on the system globally at all times of the day. Competitors will have a very hard time replicating that.
Your comment would be true if it weren't possible to list on multiple sites/apps at the same time. Many studies have already shown that the majority of drivers in large markets (SF/NY/etc) keep multiple apps open, and accept fares from whichever one offers the (probable) best return. While Uber appears to be fighting this by modifying some policies, there's ultimately very little they can do to stop this.
They could easily stop it by calling drivers employees and forbidding them from working for someone else while on the clock, but its not important enough for them to do so.
airbnb has a real problem: VRBO. VRBO is routinely cheaper than airbnb, has been around longer, and doesn't have the legal issues, and has the support of the baby boomers. Good luck, airbnb.
$150M a year in losses. Sounds great! My parents generation, which maybe also has something to do with living in the midwest, has been using VRBO and it's affiliates longer than airbnb has existed outside of silicon valley, and are reluctant to change.
They're also the property owners right now, relative to the millennials.
$150M is a large number, but so is $1b. At that burn rate they have over six years of runway.
It may be that for every $100M they spend on acquisition, they make $200M over three years in sales, in which case it would make sense to burn cash now to capture the market. They could also be going all LivingSocial: setting money on fire with no path to unicorn profitability.
Anyway, no real way to know without the inside financials.
Have you ever tried to rent from VRBO? I did a couple years ago and have never been back.
Approx 30 calls, 6 or 7 responded, a couple of those hadn't kept their calendars up-to-date, and only 2 actually were available and matched the info on the site. I was doing my best to spend $6k on a ski vacation and vrbo just didn't want to cooperate. The whole thing was a giant waste of time.
I sure have. Take a look at Lake Tahoe's VRBO/homeaway listings. They're routinely cheaper on VRBO than airbnb for comparable properties, and it works fine.
VRBO and HomeAway tend to be better for higher-end properties. People that spend a lot of money want to talk to the owners prior to booking and VRBO/HomeAway facilitates that. People that own high end properties want to talk to the renters too. They also have custom rental agreements baked in to the booking process. I rent a 6BR and everyone wants to get a better deal. That's part of the dance. I tend to favor last minute / higher yield since I have a solid product and an automated home.
AirBnB prevents pre-booking contact because their model is different. They make money on bookings, mostly from the consumer. For HomeAway I pay them ~$1600/yr and get featured placement and no booking fees. That is actually a small marketing expense for my property so the consumer can actually pay quite a bit less by booking my property on VRBO instead of AirBnB which charges the consumer 6-12%.
AirBnB has the problem of being seen as the platform for renting shared space. I think they will do a good job branding as a place for entire home rentals but that may take some time with the older crowd. They have a good renter review system which doesn't exist on VRBO. They are prioritizing hosts that respond quickly because they know that in order to take real share from hotels/resorts and HomeAway/VRBO they will need to provide a better booking experience and also excel at last minute bookings. HA/VRBO doesn't have a lot of checks in place to ensure the consumer receives adequate service and this is mostly due to their chosen business model.
I don't know how this will shake out in full but as an owner, you should be on both. Expedia bought HomeAway so I think that is huge for them because they could launch a really compelling reward platform and provide owners more distribution. I would bet AirBnB would get scooped up by someone as well or finance a strategic acquisition of their own.
Once business travel falls to AirBnb/HA/VRBO due to incentivized rewards programs, hotels will be extremely scared, esp since most are franchises who are losing power. This hasn't happened yet. They're telling the story that AirBnB/VRBO has simply provided more room-nights that wouldn't have happened without them but I don't buy it.
Regardless, there is plenty of space for two heavyweights and I'm bullish on both.
VRBO is actually starting to copy Airbnb's pricing model because they're losing. It has worse legal issues in many areas because it is outright short term rentals instead of hosted rentals. Additionally, the response rate and speed is much worse than Airbnb which is all that matters to most baby boomer users. My dad gets frustrated as soon as instant booking isn't available like a hotel room
what's the pricing model they're copying, exactly? you mean the pricing model that airbnb copied from existing hotel chains (variable pricing?). very unique and innovative.
I still can't fathom how monetizing what are basically just shared network drives, a feature already built into windows, is a successful venture.
Hire an IT guy and have him setup network shares, done. But obviously there seems to be some need I'm overlooking, considering the revenue these companies are making.
Define "Many quarters". 10% grown in 2015 is hardly "flat" (288m to 316m). It's definitely less than prior years and less than other social apps, but "flat" is a strong word.
Isn't uber a long play on self driving cars that can be summoned with an app? That's why GM invested in lyft. They need someone to buy their fleet since the number of car owners is going to drop to a few companies in the next 20-50 years.
AirBnB's valuation is 25B. It could make a trivial dent in the worldwide hotel market and crush that valuation many times over.
Uber is 50B. The global taxi market alone is worth many multiples of 50B, and that's not counting all the delivery services, bus/public transit-replacements etc that Uber is pushing for.
I'm not saying these companies WILL capture all of their current markets, but it's ridiculous to say the valuations wouldn't be supported if they captured the whole market.
> AirBnB's valuation is 25B. It could make a trivial dent in the worldwide hotel market and crush that valuation many times over.
How defensible is the model when then either don't own the real estate (even McDonalds is famous for making money this way) or have contracts to manage the real estate (as many hotels that are now management companies do).
Right now they may seem to own both the people who have places to rent and the people who want to rent but in no way is that as solid as having actual hard assets (or even long term contracts and most importantly a hotel brand). Or even in the case of an Amazon warehousing and logistics (or owning actual data centers).
These hypothetical situations need to be taken with a grain of salt. Many big companies have tried expanding and taking over other markers, unrelated to their core business - they usually fail or acquire a company in that space(e.g. Google-YT; Facebook-Instagram etc.)
I think that Uber could make a killing as a general delivery service... If you included smaller "hand-offs" for drivers around town, they wouldn't match UPS/Fedex for remote distribution, even overnight, but could definitely be a boon for local businesses.
"For instance, there seems to be a consensus that the most lucrative cab market in the world is in Japan, where yearly revenues are estimated to be about $20 billion to $25 billion just in Tokyo, followed by the United Kingdom with revenues of $14 billion, the bulk from London, and the U.S. with $11 billion overall and about $3 billion in New York. Assuming taxi revenues in the rest of the world add another $50 billion to this total, I arrive at a total market of $100 billion."
Uber stands to gain more than the cab market. It steals trips from car ownership and public transit that were never going to be traditional cab rides (cost, inability to hail in less dense neighborhoods, hour plus wait and piss-poor reliability of calling dispatch, etc).
Uber won't capture merely the value of the US cab market, they're going to vastly expand it. People are already using Uber for things that they would never otherwise have tried to hail a cab for due to either cost or inconvenience or annoyance. It has significantly opened up the potential scale of the US taxi market, and will continue to do so. Uber's use is also blatantly going to broaden beyond the classic taxi market, whether that's to autonomous (which will again drastically increase the size of the market by bringing down the cost) and or deliveries.
You might as well pretend AirBnB is only trying to capture the hotel market's value. When in fact they're vastly expanding upon it while simultaneously taking market share away from hotels.
Even if all this is true, that assumes that no competitors appear and undercut/outcompete Uber. There's no stickiness here - a competing car service would be just an app away.
Assuming those numbers are all true, we still need to lump in all of the other delivery services and other verticals that Uber/Lyft are attacking.
Then on top of this you've computed $100 billion per year which can easily justify a $50, $100, $150 billion valuation since you'll in theory be getting that $100 billion every single year
The annual revenue for taxis in SF was ~$100MM. Uber's annual SF revenue is estimated to be $500MM. So Uber has "captured" 500% of the market. Does that explain their valuation?
They're not trying to capture an old market, they're building a new one.
Do you really believe that Uber is capturing $500 million out of SF alone? This number is totally unbelievable (and unverifiable), but even if it were true where is the evidence that this is not the result of a pathologically defective taxi market in SF.
edit. The comments on this story sum up the ludicrous nature of this $500 million dollar revenue [1] - $625 per person per year!
Why is that number not believable? Like the comments you pointed out mention, it's likely gross not post-driver cut, likely includes more than just the 7-mile diameter of SF, includes tourists, surge pricing can be pricy, corporate comping, etc.
I never incur surge pricing and infrequently take Uber yet I can easily pay $100-200 in Uber costs per month. Then you factor in the non-UberX options that are way more expensive, UberEATS, etc. etc...
It is not believable because it is comparing oranges to apples. It is comparing the revenue of the SF taxi industry (not the dollars going through the drivers hands) to the dollars going through Uber for some area of unknown size around SF.
It is also unbelievable if you try to do the bottom up revenue numbers. Uber claims to have 11,000 drivers in SF [1], but most of them are part time. This implies a monthly revenue per driver of ~$3800 at the $500 million revenue number. Actual data from surveying SF Uber drivers working more than 41 hours a week showed they only generated revenue of $2971 a month [2]. The drivers working part time (20 − 25 hours a week) only generated revenue of $1376 a month. I can’t think of a way of making the top down and bottom up numbers agree.
Unfortunately the first link doesn't appear to direct correctly. I'm still willing to think 500M is plausible, with Uber Black and SUV included (is it safe to say these professional drivers make more than 3000/mo on Uber?). Even if it's not quite 500M, or maybe they needed to flub the geography or numbers to get to that number, they're still generating huge sums of revenue in what is only one large metropolitan city out of hundreds around the world.
I have fixed the link. They do appear to be generating a large revenue out of the SF area (my best guess is their real revenue is somewhere between $40 and $50 million), but SF is a very unusual market that is particular suited to a service like Uber. How much it can be used to extrapolate into other markets is an unknown question.
The more fundamental problem is how much profit can they generate. Historically, the taxi industry is not one that has generated large profits without political protection (i.e. medallion limitations). It is very hard to see how Uber will be able to achieve monopoly level profits going forward. As I said in the beginning I think Uber is a great business that will make a lot of money, but it just isn’t worth investing in at its current valuation.
> The problem is the new VC-funded startup model is a sham to rip off the public.
That has always been the VC-funded startup model. The difference between now and the dotcom boom is that the public isn't so gullible anymore (or at least not so soon after the financial crisis). Your grandma in Wisconsin has long since shut down her brokerage account, and has no intention of reopening it.
> That has always been the VC-funded startup model.
No it hasn't. Intel, Apple, 3Com, Compaq, DEC, and Lotus are all companies that took venture capital to get started. They are also all companies whose business model was "make things and then sell them for more than they cost to make" instead of "aggregate a lot of eyeballs and then figure out how to make money off them later." There's nothing special about venture capital that requires one model or the other.
What's changed is the underlying need for venture capital in the first place. It was originally needed because the things startups wanted to make and sell required a huge up-front investment to get started -- building fabs or factories, hiring lots of engineers and programmers, etc. There was just no way to bootstrap a business that needed so much cash up front, so VC money made businesses possible that otherwise could not have ever gotten off the ground.
Nowadays the cost lots of that stuff that people had to expensively do for themselves has been commoditized down to nearly nothing, so nobody really needs VC just to get started anymore. What they need VC for is to get big faster than their competitors, in order to muscle those competitors out of the marketplace. And VCs need horses to bet on, so when all the horses are running the "get big fast" game, their money is going to flow towards the companies that show the best possibility of getting big fast. Which is to say, companies that make stuff and then give it away for free.
And there's a prisoner's dilemma element to that -- if you are the one VC who's still interested in funding companies that make stuff to sell at a profit, your investments will get clobbered by competitors funded by all the other VCs who are giving it away. So you have to play the game, whether you want to or not.
I highly doubt this will be happening to the likes of Uber or AirBNB anytime soon, for one Travis Kalanik is one of the brightest guys on the planet and relentless in his efforts, much like Jobs in his prime. AirBNB will face more challenges but the amount of monetary funds it collects in transactions and fee's it is collecting will keep it at the top for a long long time. Anytime a company puts money back into the hands of the people, you have a good product. Etsy lost its shit because they decided to start letting every one and their mother sell on its site, and it ruined their core business model, which was selling vintage artisan goods.
AirBNB (and Uber) don't own or control any of the property that they are collecting transactions and fees on. They rely on extraction of value from independent contractors; if a viable alternative exists, those contractors can dump them in seconds (or however long it takes to download the alternative app/website).
The barriers to entry for any competitors are highly behavioral. Consumers are used to using (and implicitly trusting) AirBnB and Uber. Any new entrants would have to replicate that. This is part of the reason why Jet.com will never beat Amazon.
I remember when Yahoo was a manual index, AltaVista was the best internet search, and Hotmail wasn't a MicroSoft owned company... when most email addresses were truly painful (anyone remember doing internet email via fidonet? compuserve?).
Google has now been king for a while, but if someone came out that did things clearly better, people aren't tethered.. even Facebook has its' upstart competition (that they keep buying off).
People are less tied to their services than you think.. yeah, plenty of people are still using yahoo mail, and others aol for email even... but few are dialing in and fewer still could remember their icq login if they tried.
Do users pay for any of those services you mentioned? This changes the dynamic completely by forcing the user to become engaged.
At the core AirBnB and Uber are selling commodities. They appear to be the lowest-cost producer because of their cost structure and scale. The price advantage alone is a high wall to scale.
Could another entrant come and improve the AirBnB or Uber experience 10x? Maybe. I wouldn't bet money on it though.
You just pointed out another barrier to entry for Uber and AirBnB. New entrants will probably have less selection and higher cost. This is fatal in a fundamentally commodity business. There will be no competitor to AirBnB or Uber for the foreseeable future.
Lyft seems to be doing okay, and don't underestimate targeted markets for upstart competition... If you can get most of the BnBs in say Sedona, Prescott and Payson Arizona to use your upstart service, you can grow from there, one targeted market at a time... local presence can be a significant advantage.
The textbook response would be a price war. Raise prices in uncompetitive cities and lower prices in at risk cities. This is one of the tools Standard Oil used to create its monopoly.
What point are you making? Perhaps it isn't too hard to look at examples of tech companies that have done well since IPO. This is quintessential cherry picking. The market in general has been downward recently but Atlassian and Godaddy are holding their own for example:
The stocks you mentioned barely get any buzz in tech media (TechCrunch) or HN. The stocks that OP mentioned get a significant number of mentions here. A number of unicorns are dying, experiencing significant criticism (Theranos), doing not-so-well (Square, Zenefits), or exiting negative returns for investors (Gilt Groupe)
The point is the companies that seem to be getting the most hype (young, 'disruptive' companies) don't seem to be doing well as IPO companies. This is an issue for the public investors (who are often pension funds, average investors, etc) and employees.
This seems to be a clear indictment of tech media, who are more interested in hyping up stories than really digging into a company's fundamentals. The only losers are common people in this scenario.
Why would anyone even expect the set of companies that are most fun to write about to be the same as the set of the companies that are most successful? I kind of figure they would just have a representative amount of success.
I don't know why TechCrunch is indicted because it writes catchy profiles about cool-sounding companies instead of digging into the economic fundamentals. That's just two different things you can write about. AFAIK (not very far) it never pretended to be doing the other one.
Add this to the fact they announced layoffs a little while ago + are now experiencing significant competition from bigger players, one has to have a not-so-great forecast for the company
Fb will collapse too. People under 22 have quitted, and among older people, very few people post. The main product is dead essentially. Of course, the revenue lags behind this usage curve, just like in the case of Blackberry: the product was already dead but the revenue has not peaked yet. What remains is the fb messenger and very costly acqusitions of new stuff: whatsapp, ig, potentially snapchat. That strategy remanins to be proven to become economically feasible.
This is just the market reflecting reality. Most of the "unicorns" aren't actually worth the billion or so dollars their valuations are at. They don't generate enough of really anything that is worth the silly valuations they get. This is why free markets are a good thing. They eventually correct themselves.
So what? As an LP, they made the choice to let someone else actively manage their money. Part of the risk/reward trade-off when using VC as an investment vehicle.
I am just pointing out who is losing the money. The fact that a large amount of this money is coming from pension funds trying to hit totally unrealistic returns in a zero interest environment is just an unfortunately coincidence.
So, I'm kind of picking on you here, but people always say this about things they think are bad.
But there are pretty big structural differences between going short and going long. In particular, you need to know much more precisely when the bad things are going to happen. Sometime do a short (and if you already have, great, you know what I'm talking about). Its not nearly the "haha how stupid are they", people think it is.
It's okay to pick on me, I wrote the comment without putting a lot of context in it. I usually stick to trading commodities, not equities.
My comment really was saying, "I believe that tech startups have significant headwinds, poor underlying fundamentals, and would like a simple way to capture the profits from trades made around those assumptions."
It's only Alibaba stock they hold that creates any "value" in Yahoo.
"The latter part of the business is clearly pulling the former along. Here’s how to think about it: Yahoo has a stock market value of $34.1 billion, and owns a 24 percent stake in Alibaba. Estimates for the current value of Alibaba, which is planning an IPO, range between $75 billion and $125 billion. If it comes in at the low end of that range, Yahoo’s stake would be worth $18 billion, or just over half of Yahoo’s total market value. At the high end, Yahoo’s stake in Alibaba would be worth $30 billion—which would imply that the rest of Yahoo’s enterprise is worth as little as $4 billion, or 12 percent of its current value."
In fact they're not valued at zero. It's the Alibaba stake that is discounted, as all cash and assets on a balance sheet are by investors. That's trivially easy to prove by looking at Comcast, Time Warner Cable, Berkshire Hathaway, or Apple's financials.
If Yahoo were floated on the public market, with $4.8 billion in sales and $200 +/- million in profit, the valuation they would receive is not zero.
Proof? See: the valuation AOL had before being sold (not to mention what they got sold for). Yahoo is very obviously worth more than AOL was.
The bad analysis that Yahoo is worth less than zero, is caused by people that don't understand how you actually value corporations in reality. The bogus $0 valuation appraisal only exists in a fiction (and it makes for excellent clickbait), not in reality.
It's not an opinion that $4.8 billion in sales and one of the largest Web properties, is worth more than zero. That's easily backed up by comps such as AOL, Yahoo's nearly 20 years of being public along with how the markets treated it, and how they were valued prior to the Alibaba stake becoming valuable (hint: they never received a negative valuation, even in the absolute worst of times post dotcom bubble when their business was falling apart rapidly).
Fair value on stand-alone Yahoo is a lot closer to $5 to $10 billion than not. Verizon just paid $4.4 billion for AOL, which has a fraction of the business that Yahoo does.
I could claim that Microsoft being worth more than $1 is merely an opinion. Does that mean Microsoft's market value is subject to such whims? No, there's a vast historical basis to go on, and a well understood approach for valuing such companies and their businesses. The opinion of Microsoft being only worth $1 is wrong, and easily proven so. The same is true regarding Yahoo's core business being worthless, and for the same conceptual reasons. The only valid room for opinion in the matter, is in how much it's worth. Anything else has no historical example to back it up (there is not a single example in modern history of a public corporation of Yahoo's sales size, with a positive balance sheet and earnings, that isn't collapsing due to some scandal, that is worth less than zero; not one example exists).
That's incorrect. Wall Street thinks the Alibaba stake, Yahoo Japan stake and its cash holdings are worth less than their face value - as is always the case (see: how EMC's VMWare stake has always been discounted historically). For numerous reasons, the most obvious of which is: investors can never realize the entire face value of those holdings, so they never give a $1 to $1 value to them.
We can simplify this really fast: give me one example of a public company of even remotely similar financials trading with a negative market cap in the last ~30 years in the US equity markets.
Tons always have. Look up the valuation of Macy's real estate; it is about 2x the market cap. Even adjusting for the full EV value its at a discount. They would realize more value by shutting down the retail business and selling off the real estate. But investors feel the chances of that happening are slim to none which leads to the low valuation. Yahoo is a tech company but revenue, growth rates, net income and free cash flow are common to all companies.
I realized that I'm not sure what Yahoo actually does these days. So I looked at their website, and...I still have no idea. Their homepage is set up like a sketchy news aggregator. Wikipedia says they do a list of things (mail, video sharing, online mapping...) that Google and others obviously completely dominate.
As a side effect, I'm recalling the days when Yahoo was a directory of websites, and getting nostalgic for the days when people actually had websites.
I still have an email account with them that I setup a long time ago. Use it to sign for various one-offs.
It's amazing how bad their email has become. Constant timeouts. Have to switch the "basic" mode to actually get email to load sometimes. The mobile version is barely alpha quality - the drafts workflow is horrible, it sometimes sends the same email multiple times. Issues with refresh. Shows stale emails. "Your login session has expired, you must log back in" errors even though a refresh makes it go away...
I mean it's bad. Really bad. Embarrassingly so. Like "how has someone not lost their job over this" bad. Or maybe they all did and now there's no-one left...
Well, we can't blame the costumers - what they have is good enough - how do you motivate them to keep buying the new version? It sounds kinda like the conundrum Adobe had :) Maybe there's a market for the GoPro CC edition?
Yep. Nasdaq chat shows a split last August. I've noticed Google finance seems to have trouble with share splits. Other sites like Yahoo finance handle them just fine.
While many are saying the bubble is popping I feel like it's just correcting itself. Other companies with high evaluations actually have a business model and hopefully shouldn't suffer the same fate.
It's not really correct to say "Wall St loses its shit."
I think it's more correct to say that the extremely high valuations to start with are predicated on the idea that these companies can expand well beyond their initial niche. They're all hoping to be like Facebook, who went from college kids to the whole world. When it starts to become apparent that this won't happen, valuations come down to reflect a niche product.
You may say that Twitter has been beaten with a bat by Wall St, but they are still worth 12 billion dollars. Someone hit me with that bat.
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I think the problem is that they stopped caring about their user base and, therefore, became less ubiquitous and people saw that and were like "oh.. time to value them lower.."