Is there any real reason why Tesla should be worth more than the rest of the US auto industry combined? Can Uber ever actually turn enough profit to justify their valuation? At what point does Amazon stop growing and their PE ratio start mattering?
Right now investors seem to believe that these companies have a very bright future ahead of them. Some of these companies have had “a very bright future” for over 20 years now. Some of these companies have very bright futures even though they’re only supported by investors and have never made any money of their own. Uber, for example, lost $8.5b in 2019 and are surely going to lose a ton this year too.
In the long run, how many SV unicorns and traditional companies pretending they’re tech companies will actually prove their valuation was right? A bear would say very few.
I think this is like asking "Should Amazon be worth more than all e-tailers combined?" circa 2009. Both of their businesses are growing in tangential directions to their core business. In just about 5 years, AWS turned from some "nice supplemental income" to becoming the company's new core product.
The Tesla bulls are betting that Tesla's energy collection and storage products will grow to eclipse their car business and take advantage of the economy of scale of the GigaFactories. The bears are only looking at Tesla as a niche car company.
DHH had a widely shared post where he said FB wasn't worth $33B+ and it could never be. He was clearly wrong (off by an order of magnitude). Eventually there will be some overvalued companies (WeWork before the valuation plummeted might be a good example). But given how many bear predictions have turned out to be really wrong, it's good to be skeptical of similar arguments going forward (they won't always been wrong, but some have been spectacularly wrong).
Fab could have been successful as a not-so-large company, but it wanted to be Amazon.
For every pundit-bashed unicorn, there are tens of thousands of times the pundits got it right.
That's been the dynamic with Tesla since the company was started.
> At that point Tesla may become no more than Dachia or Kia.
The future is already here, and it requires these old car companies (Ford, GM, etc) to not only become electric car companies, but also become computer hardware and software companies. Many many manufacturers will fold in the coming years or be absorbed by larger conglomerates because they simply won't be able to compete on these vectors.
The advantages/efficiencies these old car companies have spent decades building are being rendered irrelevant. And that's the real problem for them. The risk isn't that they can't compete, the risk is that whatever they put out is irrelevant. Think iPhone v. Blackberry.
It's not just about making a new type of car. It's about building a new kind of company entirely.
The worst case scenario is Tesla gets acquired for a godly sum of money - not that it goes under or becomes the next Kia. Tesla's battery production capacity very well makes the company one of national strategic interest.
TikTok has been very good at focusing on new content discovery first when you open the app, making you swipe left to see the people you follow second—this is the opposite of Instagram. If Facebook does manage to pull people like Charli D’Amelio and Addison Rae to Reels and makes them more prominent, it would really be interesting to see two different philosophies compete against each other.
https://techcrunch.com/2020/07/01/lasso-facebook-tiktok-shut...
Sounds more like Facebook should restructure as a holding company and keep creating independent concepts to see what succeeds, but keeping the Facebook name is likely an ego-driven decision.
Obviously Tiktok and their advertisers will be doing a lot of work on this, and they've only just begun, but I really wonder about the efficacy of the medium for ads. It seems like a much more difficult forum for that. Even youtube ads I've heard are often cheaper than fb/google ads, perhaps because the video format is so challenging for advertisers to get right (plus it's expensive to produce good creative).
These companies make apps to try to monetize a community, but communities are fickle and easy to scare off. If I were an investor, I'd value these apps for the computers in their offices and the code their developers write and that's it. Maybe $100mil if you get me on a good day. You can't value them for their reach, because it's not the company or the app that makes them valuable, it's the community.
https://www.statista.com/statistics/545967/snapchat-app-dau/
Besides that, they've built out their first-party content platform pretty well, which I assume is what's driving their advertising growth, and (anecdotally) is shared in-app relatively frequently, although I've recognized some reposting/reformatting of said video content from Youtube or other sources, e.g. WatchMojo.
Snap is losing a lot of money.
Their operating loss was an astounding $596 million for the first two quarters of 2020. Barely an improvement over last year's $620m operating loss for the same period.
Somehow they managed to generate a $596m operating loss on $916m in sales. Truly remarkable performance. It's not easy to so poorly run a business that should be printing profits. Facebook generated nearly a billion dollars in operating profit at that sales scale. The least Snap could do is break even.
What makes TikTok unique beyond growing like wildfire: their monetization strategy will be easier (the social aspect leads to relevant advertising), and their community is more stable!
The stable community is driven in part by their algorithms, which replace Instagram and Facebook's idea of a feed of those you follow. It gives more power to TikTok, in that you won't notice if some members of the community leave, and they can continue showing you content you'll enjoy from millions of other users.
To run through the list of companies you mentioned:
(1) Snapchat has a solid userbase that's likely to stay with it, and they're worth over $30b. They aren't profitable, but they chose that path when they focused on Spectacles above monetization, and paid engineers more than Google. A $50b valuation wouldn't be unheard of if they had 2x time-on-app as TikTok does.
(2) Vine had hundreds of millions of active users when it was shut down by Twitter.
(3) Tumblr is unique; they cut their own head off when they started removing content. They were always a niche service, without the mainstream appeal and without the ability to target their users with relevant advertising.
I think monetizing a community that did not start with the expectation of being monetized will be difficult. Reddit is dealing with this right now and it's degrading the site and the community and they still aren't profitable. Youtube has the same issue right now - many creators did not plan to have their channel monetized and are now being shutdown or delisted because their content is thought to be dangerous to the monetization efforts.
This is what I mean when I say that TikTok is "easy to uninstall". As soon as a creator feels burned by the monetization efforts, they press and hold and click Delete App and they are gone. There's no contract in place that says "if you quit you must give us 60 days notice or pay a penalty", there's no stickiness but the validation from the community.
Monetization puts the company in the middle of the validation the creator gets from the consumer. Creators detect this, feel like they are being cut off from their drug, and bail to find the next "dealer".
The endurance of Facebook, Instagram, Youtube and Twitter is the precisely because of the connect/subscribe/follow model.
Algorithmic content from random creators is not a model for creating an enduring user base. Users will eventually get desensitised to it and leave. There's a limit to how many memes you can consume.
Another thing about these users in this specific demographic always eventually do is they just grow out of it and leave for something else. Or perhaps what was 'hot' in 2020 is now 'not' in 2021.
They'll just flock to the next social network rocket ship until either it runs out of fuel or if the liftoff (momentum) is too slow. Which ever event happens, it's the beginning of the death of the social network's growth.
Vine was bought by Twitter and shut down. Tumblr was bought by Yahoo and suffered the same fate as everything Yahoo buys.
Well you really don't have to do a lot to have better content than Instagram.
I'm glad TikTok could prove that social network users including very young generation can produce better content. Otherwise, Facebook was going to brain damage half of the earth population with the type of culture they are promoting for profit. And everybody was going to blame generation for it instead of the world that we designed for them.
Instagram, acquired for $1b in 2012, had $0 revenue.
WhatsApp, acquired for $19b in 2014, had $10.2m revenue.
Based on TikTok's usage-per-day and active users being comparable to Instagram, they could presumably generate ~similar revenue if focused on it.
With these types of apps, growth comes first, and profitability comes later (and the profitability step seems to come easily, unless FB cannibalizes you).
2) Online spending: In theory wealthier countries / demographics should have higher online spending. May also have correlations with gender, age, employment status, number of digital devices, delivery infrastructure, etc.
3) Advertiser relationships: the real customers have to want to put their stuff next to your content.
4) Political risk: if many countries ban it, it’ll lose access to a lot of high value markets.
Lastly, profitability doesn’t always come later particularly for high bandwidth applications. Personally I’ve been getting a higher number of ads from YouTube but they are exceptionally poorly targeted (I skip at-least 90%). I would expect google to have as much data as anyone. The only explanation I have is that it’s simply too expensive to produce video ads to have an efficient targeted ad market.
I'll take the opposite side of this bet any time.
TikTok will become a juggernaut on par with Instagram and perhaps even surpassing it.
"The investors’ bid values TikTok at 50 times its projected 2020 revenue of about $1 billion..."
So that's a projected revenue growth of 465%. That's still projected, but a big number.
Where are you getting the $176mm figure?
Infact I would go ahead and say real tech was under valued look at Sun Microsystems, A company that Developed its own Processor (Sparc) , Its own OS (Solaris) , Its own Database (Mysql) , Its own VM (Virtual Box) , Its own Language and Development Platform (Java), Its own Development IDE (Netbeans) every one of those products is real technology and a leader in its own category.
And yet the company was sold at 1 Billion USD, which seemed like short change.
That was 2009 though, was 1B USD small compared to the average corporate acquisitions at the time?
Instagram was also sold for 1B if I recall correctly.
Yeah, I think it’s overvalued by several hundred billion, which is scary dangerous when you think about it. That’s a bubble that tech might not be ready to reconcile.
If that's the case, do you believe FB is overvalued at $662B? Instagram, as of 2018, was estimated to be worth around $100B on its own (with about 1b MAUs, versus TikTok's 800m).
TikTok seems at least equally addictive, and its algorithm does a fantastic job at quickly showing good content that matches your interests.