The key difference with Amazon is that Amazon could choose to be profitable at any time- just raise prices ever so slightly, reducing growth in customer demand, and the stop building out its enormous logistics empire and new businesses. Amazon could have had profits for a very long time, but Bezos understands that re-investing money in the company grows the value quickly. Plus, you only pay taxes on profits.
MoviePass can't really do that. They don't have potential profits that they can just stop re-investing. They aren't spending money on investments- they just don't have income high enough to cover the costs of their product. And lots of other start-ups have the same problem right now.
You actually can. It's the oldest trick of the industrial age, mass production and economies of scale. A good rule of thumb is that increasing production of a physical good by a factor of 10 will drop the unit cost by half. For non-tangible goods the effect is even more pronounced. The fist copy of Microsoft Windows might cost 1 billion dollars to produce, while every next copy is essentially free.
What this new breed of money loosing company signifies is a shift of business models to the software-eat-world paradigm: high upfront capital investment, zero marginal cost, exceptionally strong consumer lock-in (thus profits) once you break through and dominate the market. There is nothing fundamentally different between Amazon Prime and MoviePass, they are both loss leaders designed to increase foothold in the market, with a view to later use that dominance to dictate the rules. One was built on good economics and well executed, the other is not and will fail, but it's essentially the same business move.
> The fist copy of Microsoft Windows might cost 1 billion dollars to produce, while every next copy is essentially free
You'd have to split R&D costs by the units sold here. If you spend 1B and sell 1000 copies a price of 100$ per copy won't help you.
Then you have the secondary effects of lock in (with software/services) that makes every sale also reduce the cost of a future sale or economies of scale (physical goods) that again make volume more desirable.
This doesn't contradict the adage about having to sell at a per unit profit, but it complicates figuring out what number that is and can lead to some non-intuitive results, which does trash the value of the adage as a simple way of looking at things.
Not saying every company that is selling at a loss to get customers in hopes that they'll mysteriously figure out how to later profit is doing so correctly, but some are. Oversimplification adds little value to these problems.
MoviePass sells subscriptions and then buys tickets. For each extra subscriber they've got an increase in marginal cost. You might argue they can make a profit by charging more for the subscription than they pay for the tickets, but there's lots of factors working against that:
1. When they IPO their suppliers will know their revenue and can demand high prices to match, seriously threatening their marginal cost.
2. Their suppliers already have scale and so will be difficult to leverage - further hitting marginal cost.
3. Their suppliers are extremely capable of producing a competing product undercutting them- destroying the lock-in component. The suppliers control access to the content not MoviePass.
Amazon stopped making /losses/ rather quickly. They /invested/ in the health of their business and future opportunities instead of delivering profits to outside investors.
Arguably, a better structure for incorporation does exactly that; it provides benefits to it's employees and the community it serves.
There is a lot of trust here that Amazon is secretly really profitable not just growing because their profit margins are unsustainably low. It wouldn't be the first time a large company engaged in questionable accounting if it turns out their unit numbers are actually not as good as they claim because of some accounting shenanigans.
It's completely different to retail, which historically has low margins and has to compete with Walmart.
I'm not saying I necessarily agree with this assessment.
I mean unlike 99.9% of the first wave of DotCom startups they managed to avoid actually going bankrupt.
* Real Networks
And three of the seven were in severe financial distress. It was like, "hmmm is it time to leave Seattle?"
I feel like a lot of startups are simply using investor money to give unreasonably inexpensive products to customers.
For software companies, there is often a point where growth simply makes you profitable because your costs are relatively fixed. For my own B2B startup, we had plenty of graphs that showed at exactly the point where we no longer subsidizing our customers businesses and instead making a profit. Sadly we ran into a few road blocks and ran out of cash before hitting that golden mark. But, when your costs rise linearly to the number of customers you have, then you can never achieve profitably through growth alone.
I believe "frupidity" is the in house nickname for this.
That's a huge distinction, if you start having to raise more debt or equity in order to fund your growth it's going to negatively impact the long term free cash flow per share of your business and will make it harder for your to generate outsized returns.
Their latest 10Q shows GAAP pretax income of $1.9 billion.
If you're referring to total change in cash which was -$4.2 billion, that's because they reduced their accounts payable by $10.2 billion from paying all the suppliers after the holiday season. Looking at the consolidated statement of cash flows of a seasonal business very, very easily leads to misunderstanding the business.
Operating cash flow was $18 billion for the year ending 3/31.
Long-term debt was $3bn in 2013, increasing to $8bn in 2014 and $25bn in 2017. Capital leases have also gradually increased from $2bn in 2013 to $8bn in 2016 and $13bn in 2017.
The three different cash flow calculations in 2012-2015 were $4.4bn (0.4+2+2), $1.7bn (-0.1+1.3+0.5) and -$2.4bn (-0.4+0.2-2.2).
As forecasted, the divergence of these metrics has continued.
I can go to any movie I want at any local theater. That is a lot better than subscribing to five different plans, one for each theater.
I sure hope that Moviepass and the theaters can figure out a way to make it work.
If you're visiting the cinema very regularly, this saves money.
They can do this because they own the theatre, so when a subscription is used, it only costs them the _opportunity_ cost of one seat - which is very little, unless the showing is sold out, and they still make money on snacks. As MoviePass doesn't own the theatres, they pay the _retail_ price for every ticket a subscriber uses.
2) with reserved seating, I'm much less likely to buy a ticket if the showing is almost full, so those filled seats can reduce additional ticket sales.
If they develop software than that is treated as expense or buy movies that gets expensed.
Their core retail business is not that profitable. It goes from 0-3%. Its pretty much the same as walmart or any other retailer.
AWS is more profitable than their entire retail business.
Because Amazon isn't about making short term profits. Amazon is about becoming the middleman for as much of the economy as possible by facilitating the transformation of the economy into its network/computation intermediated version. Amazon isn't so much a money loser as it is an economy absorber. It has been that since before day zero. That idea predated the notion that Amazon would sell books.
This is semantics. If I make $100 on a $60 spend, and then choose, like Amazon, to reinvest the $40 in the knowledge that it will improve efficiency next year, my "profit" is technically $0, but my company is not worth a lot more than $40.
If like MoviePass, I spend $100 (of borrowed money) on revenues of $60, with no clear explanation of how I've added $40 of value to the company, that's a bit of a red flag. Saying "I'll figure it out eventually" is a bit touch and go.
Your sink costs are sunk and your investment costs are optional.
Turning a profit (paying dividends) or reinvesting is a decision every investor relations team must make, simplifying the subject it is based on whether you predict your company will get the investor more money (by stock price growth/future dividends) than if he invested in other equaly risky set of assets.
I don't believe this is the case for Moviepass.
* eBay is a platform for sellers to connect with buyers
* Many think that Amazon is a online retailer, but it's not; it's a platform. A huge percentage of the items sold on Amazon are owned by small businesses who are leveraging Amazon's platform (website, warehouses, logistics, delivery.) If eBay had been more ambitious, eBay could've replicated what Amazon has done.
* Facebook is a platform for people to connect with other people
* even Google is a platform; it's basically taken the entire Internet and added ads to it. The Internet itself is Google's content, and that content was created by other people
And that's why MoviePass is doomed. If MoviePass had become a platform where movie theaters could unload excess inventory, then it could succeed, but the current model is simply selling movie tickets at a loss.
Now the thing that Amazon has for it that Moviepass does not is that Amazon gets to collect user data and use that to sell more for itself. Moviepass seems to get to collect user data, however it doesn't own the theaters so it must find partnerships with the bigger theater chains. They're hedging that they can create such a large user base and show that they can bring a lot more traffic to theaters and with that increased traffic (and lower ticket price for the customer) will sell more concessions.
For Moviepass to work ticket prices must go down (at least for them) while theaters still make more money because of larger concession sales.
What's the categorical difference between the two business models? Guess it's the fact that when MoviePass tries to change prices it will force every user to opt in all over again. Opting in is part of the everyday user interaction for Amazon.
(And heck, Amazon don't even need to raise prices, they could be very profitable just by investing in growth less. But their investors are clearly happy with the current state of affairs).
For example my local VUE in the UK I can get a ticket on Mondays for less than $6 full price is $16
I suspect that its the paying up front for a year when a substantial majority of its customers wont goto the cinema
That's what I meant by integer multiples. If Moviepass was $60 a month it might be sustainable. But it's not, it's $10.
Moviepass doesn't get any of that sweet concession stand money and they'd have a hard time convincing theaters that they should unless they start leveraging their user base (i.e. threatening to drop MoviePass from working at Cineplex) to pressure theaters. Even then they add so little value to the system that it'd be hard for them to do that while sustaining a competitive advantage against new market entrants.
MoviePass is just a terrible idea to be in as an independent business.
The MoviePass price is per month. There is NO cost per viewing.
You could in theory see up to 31 movies for your single $10 payment.
I was paying $40/month for MoviePass, and most months they still lost money and me, and I saw a lot of movies in a theater that I would normally have waited to see at home.
PS. Staff at indie theaters tell me that 70-80% of tickets are purchased with Moviepass cards.
On the other hand, I don't think AWS is the low cost leader for equivalent services. I use AWS because of the breadth of services.
It's a matter of how you define profit. Or rather, whose profit you're looking at. (And, ergo, what profit is actually driving the business forward.)
Wait what? No. They were a loss leader because they kept doubling down on a bad business models until they made headway on the reseller market to push themselves as an online retailer, which brought them out of the red. Only after the massive success of AWS, did they solidify as the most successful retailer because THAT got reinvested.
Notice, Google tries to follow this EXACT model, as it has for decades. It has little profit to show for chasing this fable-strategy because it doesn't work. Grabbing Doubleclick was a minor misstep (there were far superior companies to choose from), but at least they got youtube and were able to keep the boat floating (with a little Ad Tech dust). Riding their search engine product as far as it will go and then building an ad network on top of their search+youtube is where Google has settled.
Amazon has been looking into advertising for the last couple years and will probably be less successful than Google without a big new thing, which is unlikely to come from this mythic "reinvestment". Why does this fairytale story about Bezos keep getting pushed? Successfully keeping a company running is not the same as him being nigh prescient about how to manage the resources.
That's the gamble. Destroy competition, get lock in, become a monopolist and the free market is your money printing machine. If regulators had teeth to break up such monopolies, we wouldn't be seeing these gambles, and maybe more honest competition.
The reason enterprise tools tend to be “worse” is because the stickiness is arbitrarily enforced instead of being rooted in reality. Uber/lyft are non-sticky because theyre basically the same.
I love the conclusion of this article. As someone who has participated in the online "deals" community for 10+ years, I have definitely benefitted from many of the opportunities.
However, I do spend a considerable amount of time wondering what will happen when this house of cards comes falling down.
But you know, I think that for every one person like me taking advantage of these "arbitrage" scenarios, there are like 10 people paying full price. They keep this economy going.
That seems contrary to what the article is saying, which is that for every person taking advantage, there are zero people paying full price, because it's the investors who are keeping this economy going.
As such, it may never end without a regulatory end to the winner-take-all scenario, as a different comment suggested.
My point is that actual investors have an incentive to pour their money into money-burners because if just one of those initially money-burning is the next Google, Facebook, Amazon, or whatever overwhelming winner-take-all breakout profitable company, they will have more than justified dumping all that cash into the losers.
 for lack of a better term. I've never quite understood why it's considered "investing" to buy stock in a company if someone other than the company itself previously owned the stock. That cash isn't going into company coffers. This activity seems more like asset ownership/speculating than asset allocation (which is what I think of when I hear the word "invest").
I think I just don't agree that government stepping in is the only way to end the cycle. Seems to me it can/will die of natural causes when the "bubble" bursts.
Without that, there's nothing to burst.
Moreover, this has been going on for so long, at least since (before) the dot-com boom, and we've had quite a few economic downturns. It's not very credible that any bubble would survive that.
In the end, it is the circle of life, A few mega winners are subsidizing those losing experiments.
We should be there to take advantages of those as we are usually paying the price to the huge winning ones (indirectly, but still)
And this isn't really a "tech" problem at this point. The "real" economy is full of huge companies that are barely making any money, but are racking up debt and revenue. This article goes into how the same thing is playing out in the agriculture sector.
I'm curious what is attracting investors to these start ups in the first place, is it really just the idea that 'this could be the next amazon'? As the article pointed out - Amazon dumped a ton of its money back into the company to expand services. Most of these burn rate services are happy with just getting people signed up and then stagnating.
Growth, basically. As long as you can make a case that your 75 cent dollar store is rapidly accumulating customers, investors will be more than happy to overlook the economics of the business. Sometimes that works out, but I guess at that point it's more like gambling than investing for investors.
A SiriusXM subscription comes to mind. Since they care about their subscriber numbers, they are willing to give you the "promotional" price if you ask or threaten to cancel.
Preferably sorted by reward to effort ratio (e.g., $20 giftcard for a 5 min referral signup with personalcapital.com that you can just cancel after was pretty good).
Amazon restaurant deals are not worth it for me, even with their discounts. But I understand that a certain segment of the population doesn't think much of such an expense, and that's who Amazon is targeting.
I think that's a big part of the reason that the crash was so deep and epic; there were a lot of people who felt like it might just be a fad.
Keep in mind that when the bubble burst in Y2K, Netscape Navigator was less than six years old!
In a lot of respects, the dot com bubble was similar to the videogame crash of 1983. In 1983, everyone thought video games were a fad that had passed.
Why? A bit simplified, but think of the money as coming from the profits from the companies that have been successful. It's just how investment works. And when you add up all the gains and losses, it's still a net positive as the economy grows a little bit more year after year.
And what do you mean no net good? The companies create jobs which create huge amounts of income taxes (always) and corporate taxes (when profitable) that pay the salaries of the people who, for example, maintain our parks, or manage a city's recycling systems.
If these startups didn't exist, the money going into them would be seeking returns elsewhere. There would probably be jobs involved there too, and the people working those jobs might be doing something better for society than building a short-lived money-losing consumer product.
If the mysterious "elsewhere" didn't create jobs with the money say because it was spent on capital assets, that's still not the end of the story. Wherever it went, someone else has it now and they're probably spending it, perhaps hiring some people with it ie creating jobs.
The simple interpretation of your second line is the broken window fallacy, which is false. The grasping-at-straws interpretation is that paying software engineers to work on junk is a better than average way to route capital through our economy - measured in terms of how much real value the capital produces for people as it changes hands from company to coder + tax man, coder to shopkeeper + tax man, and tax man to public works employees, etc forever. I don't think we could possibly measure the latter interpretation, but I don't believe it.
If I pay a company $0.75 for a $1 widget with a $0.25 VC subsidy, I get the $1 widget and I'm ahead a widget. Nobody had to destroy a widget to make me buy a new one.
The underlying widget suppliers still get the full price so the money is flowing into the economy. The VCs are the only ones losing anything.
So paying people to clean parks is not better for the economy than VC subsidizing blue apron meals.
The mistake you are making is assuming that a company losing money cannot provide more value to society than it loses.
The whole point of markets is that people decide where to spend their money based on the value they can get for it. When 3rd parties subsidize services like Moviepass or Blue Apron, they break the pricing mechanism that's supposed to lead us to efficiently use limited resources eg seats in a movie theater or space on mail trucks.
If a company losing money is providing more value to the customer than it costs to operate, they don't need to be losing money and they should raise prices. Otherwise, you're arguing these companies have a beneficial externality of some kind, and society at large gains in the transaction even though the company is burning more value than the customer gains from its product. I don't think that's the case for Moviepass or Blue Apron.
It's Bastiat's idea of the unseen alternative, except we're talking about LP money channeled through VCs instead of taxpayer money through the government.
I'm not blindly against VC-, cross-business, or any other kind of subsidies. If positive externalities exist they're a good thing. Eg, Amazon was "losing money" or barely breaking even on its physical goods business for a long time, but that money was strengthening our logistics network (both internal to Amazon and in USPS, FedEx, UPS) so they could be profitable later at the same or lower price points. Healthcare probably ought to be a money-losing business because a healthy labor force has huge positive externalities. I just don't think leisure or mild convenience/lifestyle products are positive on the balance.
To be honest, most of the money is coming from pension funds, endowments, and state bodies (i.e. large institutions with monstrous piles of money). They allocate most of that money to post-IPO stocks and bonds, but they'll hand over a small fraction to 'alternative investments' too.
Post-financial crisis, when interest rates came tumbling down, two things happened. First, bondholders (i.e. large institutions) made a lot of money. Second, bonds became less attractive as an investment, making alternatives like early stage tech look good in comparison.
It's partly accurate to say that the hot money pouring into silicon valley comes from previous companies' successes. But a lot of the money is coming from 'me too' institutional investors who are chasing previous investment performance.
> The companies create jobs which create huge amounts of income taxes...
It's possible to create jobs wastefully. I could pay ten people to dig a trench while I pay ten other people to fill it in. Your arguments would seemingly still stand, but not much of value would get built.
Not as impactful as the dot-com crash... but a RIF is usually involved in these bubble corrections.
Something like Tesla or Uber or Blue Apron going belly up.
Pets.com clearly overspent on advertising, but I don't think they risked too many assets on the line. So when Pets.com eventually died, it wasn't a big deal. Its funny, because they had superbowl commercials and huge outreach. But nothing like like Webvan's huge warehouses or fleets of trucks.
No idea what it looked like elsewhere, but their spending blitz in the Bay Area was incredible. Everywhere you looked, there was their name. For a little while...
 When they first launched, they used really high-quality, solid crates for deliveries that were well worth the too-cheap deposit.
I suspect that the upthread poster picked exactly the right 90s example for what they wanted.
A fire accident of a supplier of Ford caused this, it wasn't even on their hands. Any freak/unlucky accident plus Tesla being tight with cash and time you do the math.
I've been in automotive ever since and worked for a number of the major automakers and I currently do a lot of consulting for one automaker (not Tesla). So, I understand very well how one tiny thing can really throw a wrench in production (or sales, or service).
But, Tesla has an illogical amount of goodwill right now and they can't seem to burn through it. So, until that goodwill really starts to dwindle, there are going to be investors willing to take preferred stock.
There's a chance Tesla will last a century, and people will point and say see! I told you they weren't going anywhere!
What is beautiful with this is that whatever happens next year, the "winning" camps will say that they knew this would happen.
It is a game of Statistics and chance at this point. Both outcomes are possible, but once the outcome is clear, the ones that got it right will dismiss it is based on luck and chance at this point.
IF the bubble bursts, companies that seemed profitable might not remain so. companies like Facebook have made a fortune in advertising on things such as mobile (80% of its revenue), which to my knowledge really doesn't work. likewise a lot of desktop adds don't work, but many of these cash burning entities spend a lot on adds. so that revenue will disappear, then other people who want to sell adds can negotiate better prices or simply choose not to do so.
I ask because I operate a few businesses that have ROI > 1 on FB ads. I assume larger corporations, especially those like Amazon, Newegg, Fashion Nova, etc would be profiting off of them too.
What did the add companies have to say about mobile? most of the time, if something gets clicked, its because they were intoxicated and accidentally did so.
I have to disagree on your opinion about mobiles. Mobile e-commerce is very intuitive and fast for many users (see Kim Kardashian). Consuming and sharing of media on mobile has led to clickbait and some brands have earned big money from that (see Buzzfeed). People scroll through mobiles addictively, and the invention of the "feed" by Zuckerburg combined with targeted advertising has users doing exactly what ad companies have want them to do, whether it be sharing, consuming, or purchasing.
That is the share of the market that will vanish in a bubble pop. On my experience, it's something around 90%, but YMMV.
Advertising has stuck around on TVs and all sorts of formats that can’t be tracked at all for this long, online or mobile advertising not being at the pinnacle of efficacy doesn’t mean it doesn’t work.
Yup, this fall. By the close of 2018 all the world's central banks will be in quantitative tightening after having spent the past 10 years perpetuating an unprecedented level of quantitative easing.
Fed Balance Sheet https://fred.stlouisfed.org/series/WALCL
Fed Balance Sheet hasn't been reduced in any meaningful way.
Bank credit: https://fred.stlouisfed.org/series/TOTBKCR
Bank's have themselves continued increasing the money supply.
Worldwide debt: https://www.iif.com/publication/global-debt-monitor/global-d...
Random snippet from Q32017
2. Viewing this chart on a logarithmic scale as it should be, or viewing the same data charted as year over year percent change, paints a much less intimidating picture. https://fred.stlouisfed.org/series/TOTBKCR
3. "This publication is available to IIF Members only."
This also ignores the fact that QE purchasing has continued to accelerate at an unsustainable rate in many of the world's largest economies, such as Japan.
In addition, central banks are (and have been) purchasing stocks directly to prop up the markets. The Bank of Japan spends over $800 billion yen a month buying stocks and ETFs, resulting in the central bank owning a massive 75% of ETFs in the entire market.
If you don't understand the problems with central banks owning three quarters of the market and what that means in the future (near and far) then you don't understand markets. Nobody knows when the "extend and pretend" strategy employed by central banks around the world for the last decade will fall apart, but everyone informed understand that it won't last forever. The longer we keep our heads in the sand the worse the problem will ultimately be.
Free markets are based on price discovery. Central bank purchasing destroys price discovery by artificially creating demand. Its simply a matter of basic logic. Either central banks end their purchasing and demand falls to its organic level, or they continue to accelerate their purchases and increase the artificial disparity. In addition, as the share of markets owned by central banks increases the liquidity of markets decreases, meaning that when there is a crash those running for the exit will find the door much smaller.
Don't quote me though, I'm several months out of date on following it super closely.
"Child Poverty Falls to Record Low [nearly a 50% reduction since 1967], Comprehensive Measure Shows Stronger Government Policies Account for Long-Term Improvement"
"The U.S. Social Safety Net Has Improved a Lot. ... Its social safety net is only a couple of percentage points below the OECD total, and larger than that of Canada, Australia and South Korea."
"Furthermore, U.S. government transfers have been increasing over time. The U.S. system of taxation and spending has become more progressive during the past two decades. Per-capita government transfers were about $8,567 a person in 2016, up from about $5,371 at the turn of the century (adjusted for inflation) — an increase of 60 percent"
"After 16 years of expansions in the safety net under Republican and Democratic presidents alike, the U.S. has a much more robust welfare state than people seem to realize."
The National Alliance to End Homelessness, reports that total US homelessness declined by 27% from 2005 to 2017. The drop was from 763,000 to 553,000 for all forms of homelessness (while the US simultaneously added 30 million people to its population).
"the rate per 10,000 people is at its lowest value on record."
(their 2013 report which gives figures back to 2005):
It's not an absolute value comparison.
Pump and dumps are also wealth redistribution.
(And did your economics class then go on to assume everyone is perfectly rational and understands their own utility functions, anyway?)
"players are compelled to make an ultimately irrational decision based completely on a sequence of apparently rational choices made throughout the game."
Their fraudulent premise is extracted from this single setup:
"Over all, 76 percent of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings"
There were a whopping 30 tech IPOs in 2017 (tech & biotech IPOs substantially tilt the percentage of unprofitable listings; there has been no change in the number of unprofitable biotech listings, they overwhelmingly tend to be unprofitable across all years). You see, that's the entire economy. By comparison there were 370 tech IPOs in 1999, 12x more.
Meanwhile, back in reality, the S&P 500's profits are at record highs.
Small business profitability is also booming per the National Federation of Independent Business survey (a survey going back to 1973), which is registering sales & profit growth levels rarely seen in the last five decades.
"NFIB: A ‘record level’ of small businesses are growing their profits"
"Small business profits are at a 45-year high: NFIB survey"
I don't think the headline meant to imply that literally the entire economy is MoviePass.
Just five days after MoviePass declared that it would acquire films through a new subsidiary, MoviePass Ventures, the company has made good on the promise. Partnering with The Orchard, MPV will share the reported $3 million bill for North American rights to “American Animals,” the first narrative feature from BAFTA and Sundance Grand Jury Prize-winning documentarian Bart Layton (“The Imposter”). A U.S. Dramatic Competition contender at Sundance, “American Animals” premiered there January 19, hours after the MoviePass announcement.
Full article: http://www.indiewire.com/2018/01/moviepass-the-orchard-acqui...
I saw the trailer for that movie and had to pause it to make sure it said MoviePass. The movie looks like something I'd like and I'm looking forward to seeing it in the theater with MoviePass. I like to see MoviePass movies with MoviePass, dawg.
I think the $10/month thing is a marketing stunt. Don't forget they hired Mitch Lowe who was an executive at Netflix and Redbox as CEO in 2016. I would say there's some method to the madness here. They're gaining a lot of insights and a lot of users. I would still pay $10/month even if they limited it to 4-5 movies per month.
Also, don't forget about the tech. MoviePass has built out a system that I am still fascinated by where you can check in for a movie and your pre-paid debit card is instantly funded for enough to cover the price of a ticket. I know it's nothing earth shattering but as a nerd I get a little giddy thinking about it whenever I use it.
It will be interesting to see how it all plays out. I think they're playing a long game.
Spotify, the popular music streaming service based in Sweden, lost $1.5 billion last year, even as [because] it continued to add millions of users.
On Tuesday, Helios reported that MoviePass lost $98.3 million in the first quarter," despite adding [because it added] more than a million net subscribers.
Thus the central banks keep printing new money in hope for inflation but the process where the money flows are creating deflation.
I've long thought that the ZIRP policies of the last ten years had the exact OPPOSITE effect of what was intended. The idea of ZIRP was that the Fed would inflate house prices, and this would keep homeowners from defaulting on their mortgages.
But the truth was that many homeowners only "owned" a tiny fraction of their home. Often as little as 5-10% of what they paid for it. So if their home price dropped by even 15%, they were underwater.
This created a cascade of defaults. Then gasoline was added to the fire, when the government began to forgive the capital gains of walking away from a home that was underwater.
This created a scenario where thousands of people walked away from their homes, and then large hedge funds scooped up thousands of properties for pennies on the dollar.
Naturally, prices recovered eventually, but then the former homeowners were now renters, and the rent was prohibitively expensive. To a large degre because the value of the dollar had been devalued to prop up prices in the first place.
Hey - that just might work - once you've shown enough traction and proven demand for DollarPass monthly membership subscriptions, then you should be able to go to USA.gov and negotiate a bulk pricing on $20 bills at a sig-ni-fi-cant discount. Plus if you had a payment app so the end user could pay for stuff with the $20, you could show the user ads and charge a fee of every transaction. You could also track their GPS location 24/7 and sell that.
It's all about leveraging and fully monetizing your captive user base!
Did Google or Facebook "convert a large user base into paying customers"?
Is that what enabled them to "generate such enormous profits"?
2. Alibaba and Tencent both own competing bikeshare services, so it's a cash-burning contest.
But in reality many companies are producing/exporting under cost, because it results in cashflow. To "conquer market-share".
It also means that at some point interest rates will rise ever-so-slightly and boom the whole thing will stop in a matter of a few months and we'll see 10% inflation in quite a few products and an absolute disaster in the stock and bond markets.
But in reality inflation is already here. The money has been printed. Governments have given it to their favorite banks, and financed their own careers ahem I meant government programs with it. Banks have given this in loans to everyone (because governments demanded they do this), and those managers have "invested" it in growth.
In reality of course, the vast majority of those managers and governments have no idea how to grow the economy (in fact, according to secular stagnation theory it hasn't really grown, for individuals, since ~1980-1990 depending on where you are in the world). So it's just been invested in unnecessary capacity expansion, making products they have no hope in hell of selling at the normal price, or just outright into financial constructions.
These things will have to be paid, and they will have to be paid by the customers. So the cause for price increases has occurred in the past, but people have used loans to stave off the consequences of their decisions on a large scale. So inflation is already here, and done, it's just suddenly it will need to explode.
Hey if you want to lose money on the transaction I'm happy to help you out.
Anyone care to share great examples of these MoviePass-like businesses right now so we can enjoy the savings?
Taking losses and burning cash to aquire customers also makes sense when mountain of cheap investment money and credit lines are easily available. Remember, IPO is the major event for cashing out for most investors. Balance sheets before or after don’t matter too much as long as you can cross that proverbial finish line called IPO. Once that event happens, you take a dip in so-called “river of money” fueled by massive trillion dollar funds like Blackrock (which are in turn fueled by our 401Ks) and all your sins are washed away over night.
Current economy and business models wouldn’t make sense to people who are still living in past when money wasn’t cheap and companies were valued for dividends they returned. In a way, new way is actually all good. This is what allows taking on high risk bets. Without these models, we wouldn’t have massive cloud infrastructure built up so fast without worrying about chicken-and-egg problem. We wouldn’t have app based taxies available so fast virtually all of the world without worrying about establishment. We also wouldn’t have such massive investments in AI research without worrying about actual impact. All these stuff simply wouldn’t be possible in 60s and 70s because companies would be reluctant to do investments on such massive scale without being extremely confident and diligent. Most likely these stuff would have gotten killed right away. Hype is good. Cheap money is great.
I never understood the allure of Moviepass to the investor. So basically you want to buy another companies product and resell it to another party and expect the source company to cave to your demands of partnership? What service are you providing and to who? It is similar to all those attempts to deliver groceries but they mostly failed because they were buying from a source who could care less who bought their product at full price as long as they were paid.
There are real reasons why companies like MoviePass exist, why companies like Snap lose money, and why investors back them. It's just a land grab where you have to move fast to establish dominance.
Here's an idea for a business. Monitor customers credit card transactions for subscriptions, and do bulk negotiation with the service provider to knock down the price based upon how much service the customer is actually using. Take 10% of the savings.
Each time one of these subscription payment emails arrives, the user would be shown a few extra buttons: 1. cancel my subscription, 2. Offer service $X/month to keep me as a customer, 3. No change.
Just the "one click cancel" would be useful, but the "get me a better price" should be real popular.
I do feel like the free movie ticket business in general is a bit of a mad bubble that's gonna burst in a big way. A huge number of people currently going to the cinema seem to be going on things like this instead of directly paying the huge ticket prices themselves. I get free tickets weekly from my health insurance to a cinema that shows stuff I'd never dream of paying to see, you'd have to imagine the chain and distributor are getting some reasonable kind of kickback from each time I go though.
Sure Groupon's stock went from $30 to $5, but the company still exists, and is a solid part of the marketplace.
How is this the entire economy? I bet if you added the revenues (or market caps) of all those companies together, they would pale in comparison to Apple.
The US economy will hit $20 trillion in GDP this year. The article is built heavily upon a few dozen IPO listings for just one year.
With US business profitability at essentially record highs for all sizes of business, the article is going to comical lengths to present a false headline.
If we had 500 unprofitable tech companies pulling an IPO in 2017, that would mean something. 30? That's not even a rounding error in the US economy and it obviously says nothing about the ability of those companies to reach profitability.
One year also does not make a trend. The number of unprofitable tech listings in 2015 and 2016 was similar to: 2001, 2005, 2007, 2011, 2013.
66% of the "other" category (ie everything else) reported being profitable. Something the article goes out of its way to not mention.
The 30 tech IPOs and the 32 biotech IPOs dramatically tilt the number of unprofitable listings as a percentage.
If you only have 108 IPOs and 32 are biotechs, which are almost always unprofitable, you start with an extreme tilt.
Yes, of course. (And thinking: «only as a customer»).
This is not the author's thesis. The author's thesis appears to be:
"An economy full of unprofitable companies has risks." and we should be concerned about the rise of so many unprofitable companies.
Perhaps this is the redistribution of wealth we’ve been waiting for.
Can I look forward to the AptPass Startup that will pay my rent in Park Slope so they can study my consumption patterns?
A company that isn't profitable isn't necessarily "losing money". Sure the amount of cash on hand can be declining, but if the business is building long-term assets such as a consumer brand, recurring transactions, differentiating IP, etc., that's hardly bad business management.
In order to really understand this you have to look company-by-company at what's really going on with the financials. If someone wants to give away for 75 cents something that costs a dollar, sure, that's a fast lane to bankruptcy. But there are tons of other cases, including aggressive new customer expansion, trying to create winner-take-all network effects, development of core IP, etc. that really will create long-term benefits for their owners.
Using "profit" as a metric is such bullshit. Ask Amazon. They focused on creating as much free cash flow as they could for two decades, and look where they are now. Why someone would insist a company earn an accounting profit, or even worse, pay cash dividends, in an environment with a sub-2% fed funds rate and near-zero returns on cash to investors is silly. I would much rather have a company with 10-15% return on equity "lose my money" than hand it back as relatively useless cash.
tl;dr read Ks and Qs, this stuff isn't amenable to sound bites.
Focusing on monetization early makes for successful businesses, but good products happen because they fix or solve a problem --not because they make money.