It's sensible only when you know you can flip a switch and turn to profit mode. This is true in the oil drilling example, but not at all guaranteed for tech companies.
So much of VC funding in the last decade has assumed (not only for enterprise software, but everything), that if you grow by some metric enough, one day you can flip a switch and *poof* profits. This same logic pervaded the "new economy" thinking right before the dotcom bust.
With the cost of many going up more and more of these large, unprofitable tech companies are going to have to start proving that they really can flip that switch and remain at the scale they are. I think a concerning amount will find they can't.
Their service is undifferentiated from the competition. When they try to make more money by increasing costs their users move to a similar, cheaper solution.
They have customers whose products/services call into Docusign APIs at dozens of locations. It's sticky.
One day we sat down and did the math on earning a medical degree and ending up debt free via borrowing vs not borrowing and her eyes figuratively popped.
Money is possibly the cheapest resource of any tech startup.
now that a 5 year bond outperforms most tech companies they are beginning to rethink their headcounts and all that sales and marketing spending
The IRR on sales & marketing spend at Docusign is way above 4% (approx current yield on 5 year).
a 5 year treasury bond right now has a yield of 4%. if you were to buy and hold to maturity, after 5 years you get 4% return. this is what is meant by "outperforms" in this context. If it was about the past, one wouled add -ed and give the start date.
now, docusign stock price is 62% down ytd (2022.10.01), and is only trading 7% over its ipo price. So I don't care what the IRR is, I predict a 4% increase from the current price in 5 years is highly unlikely and the downward move will deepen across the tech sector hence I will never buy this meme stock. I will check in 5 years to verify if my prediction is correct. you are more than welcome to waste your money on this, just maybe don't bet your house on it.
Stock down 62% ytd = avoid ...isn't great logic. But, no need to check back in in 5 years, there is easy money here to be had - just write a bunch of DOCU call options, long dated. Invest all the proceeds in the 5 year bond.
For those worried about "unlimited loss", just buy a wildly out of the money call, well above the price they sell them at.
Easy money - assuming it is in fact "highly unlikely" that the stock will outperform the 5 year bond.
TTM revenue is $2.4 billion. Gross profit is $1.8 bill.
They are losing money because they spend a fortune on sales and marketing. As all growing enterprise software companies do. And it's sensible. To make an analogy, if you have 1000 oil wells with high IRRs, you get drilling. You'll lose money for a while because they cost a lot to drill, and then the money just flows in.... It's the same as acquiring large customers with a sticky enterprise software offering. The only difference is that due to accounting standards oil & gas companies categorize drilling as capex while enterprise software companies categorize it as operating expense (mostly, there are a few minor exceptions).