Podcast Summary
Successful IPOs bring potential risks for investors: Consider investing in lesser-known companies with large markets to find better value, and utilize tools like Chartop and Gusto to streamline business processes during uncertain times.
The IPO market has seen unprecedented success with the recent listings of DoorDash and Airbnb, both of which saw significant stock price increases. However, there is potential risk for investors as the lockup period for insider and employee shares expires, which could lead to a return to the opening price. It's important for investors to look for opportunities in lesser-known companies with large addressable markets, such as Luminar and C3, to potentially find better value. The pandemic and economic uncertainty have made planning for business growth more challenging, but tools like Chartop and Gusto can help streamline processes and make running a startup more manageable.
IPOs and Retail Investors: Creating Artificially Inflated Stock Prices?: IPOs can experience artificially inflated stock prices due to retail investor demand, but high valuations should be evaluated based on a company's revenue growth potential and gross margins.
The recent surge in popularity of IPOs like DoorDash and Airbnb among retail investors, many of whom are new to the market, has led to significant price increases in the short term. This imbalance between supply and demand can create artificially inflated stock prices, and the importance of brand resonates with these investors. However, it's important to note that these companies' market caps are trading at high multiples of their top-line revenue, which can be concerning. While some may argue that allowing everyone to sell immediately after an IPO could lead to a quicker determination of the stock's true value, others believe that a lockup period builds confidence and provides more price action for technical analysis. Ultimately, it's crucial to consider the unique characteristics of each company, such as their revenue growth potential and gross margins, before assigning a valuation.
Concerns about DoorDash's sales growth post-pandemic: Analysts are cautious about high valuations for COVID-19 companies like DoorDash, as sales growth may slow once the pandemic ends, making a 20x revenue multiple less comfortable for some.
While DoorDash's impressive growth during the pandemic has led to a high valuation, there are concerns about the company's sales growth once the pandemic ends. Beth Kindig, a tech stock analyst, believes that a multiple of 20x revenue would be more comfortable for her if DoorDash is expected to grow at a rate of 55% or higher year over year. However, with harder comps coming up for companies that have seen triple-digit growth, it's becoming more risky to buy stocks with high valuations from COVID-19 companies. Additionally, the recent exit of Slack's management team and investors, who took cash instead of staying independent, may indicate a market trend towards caution. Despite this, LinkedIn Jobs can help businesses find the right candidates for their next hire quickly and efficiently.
Understanding Creative Accounting Practices: When evaluating a company's financial reports, be aware of creative accounting practices and look beyond misleading metrics for a more comprehensive understanding of the business's financial health. Consider metrics like gross margin improvements and gap numbers, and be aware of changes in accounting principles.
When evaluating a company's financial reports, it's important to be aware of accounting practices that may not provide a complete or accurate picture of the business. Some companies may engage in creative accounting, such as discounting lost customers or only reporting net revenue retention of customers who didn't churn. These practices can be misleading and it's crucial to look beyond such metrics for a more comprehensive understanding of the company's financial health. For instance, when assessing a public company's financial statements, it's essential to consider metrics like gross margin improvements and gap numbers, which provide more insight into the business's performance. Additionally, it's important to be aware of changes in generally accepted accounting principles and how they may impact a company's reporting. For example, a young tech company may have higher growth rates in its early years, but comparing it to an older, more established company without adjusting for age could lead to inaccurate conclusions. Ultimately, it's essential to approach financial reports with a critical eye and seek out information that provides a clear and complete picture of a company's financial situation.
Microsoft's acquisition of Slack and Zoom's expansion during the pandemic: Acquisition can be an attractive option for tech companies with high growth rates, particularly when larger companies offer strategic benefits like enterprise relationships and larger seat count deals. The pandemic has expanded Zoom's addressable market due to consumer offerings and partnerships.
The rapid growth and high valuations of tech companies, particularly in the software sector, can make acquisition an attractive option for founders and investors, even if the company is still growing at a significant rate. The discussion highlighted the cases of Slack and Zoom, with Slack being acquired by Microsoft for nearly 30 times its revenue, despite growing at a 50-60% year-over-year rate. The rationale behind the acquisition was Microsoft's deep enterprise relationships and ability to sell larger seat count deals, as well as defend against Microsoft's growing competition. Zoom, on the other hand, has seen its addressable market expand significantly during the pandemic due to its consumer offerings and partnerships with global corporations and telecoms. The discussion also touched upon the importance of understanding the unique circumstances and competitive landscape of each company when evaluating growth and acquisition strategies.
Zoom's Success Amidst Free Competitors: Zoom's superior user experience and features have allowed it to outperform free competitors, but long-term growth is uncertain due to tech giants' integration of communication tools and the rise of HR platforms like ChartHop.
Zoom's success during the pandemic has put it in a league of its own, despite free alternatives being available. The user experience and features offered by Zoom have allowed it to outperform competitors like Google Hangouts and Skype. However, the long-term sustainability of Zoom's growth is uncertain, as tech giants like Microsoft Teams, Amazon, and Apple continue to integrate with their own communication tools and offer free alternatives. Meanwhile, companies are increasingly focusing on managing their human resources, leading to the rise of platforms like ChartHop, which help organizations build, manage, and analyze their teams' data in one place. ChartHop's seamless integrations and visualizations make it an essential tool for scaling companies with transparency and intention.
Zoom's Consumer Preference and Execution Make it a Promising Investment: Despite potential challenges like churn and competition, Zoom's strong consumer preference and effective execution make it a promising investment due to international expansion, partnerships, and a predicted improvement in the pandemic situation by March 2021.
Zoom's strong consumer preference and effective execution make it a promising investment choice, despite potential challenges like churn and competition. The speaker believes that Zoom's leadership team has executed well and that consumers value the ease of use and lack of friction in the platform. While there may be concerns about churn as lockdowns ease and vaccines roll out, the speaker sees potential for international expansion and partnerships with telecoms as hedges against these challenges. Additionally, the speaker predicts that the pandemic situation will improve significantly by March 2021, leading to a drop in cases and deaths. Despite this, the speaker remains more bullish on Zoom than DoorDash in terms of revenue stability and market reaction to potential declines.
Discussing the future of Zoom and DoorDash: Zoom's enterprise product is underpriced, free accounts strategy contributes to profitability, and convenience makes it unlikely to be given up. DoorDash may face challenges as consumer behavior shifts back to pre-pandemic norms.
While some tech companies like Zoom have proven to be valuable additions to consumers' lives during the pandemic, leading to strong growth and profitability, others like DoorDash may face challenges as consumer behavior shifts back to pre-pandemic norms. The panelists agreed that Zoom's enterprise product is underpriced and its consistency and reliability are key factors to its success. They also noted that the company's free accounts strategy allows it to avoid spending on sales and marketing, contributing to its impressive profitability. However, they expressed uncertainty about DoorDash's long-term prospects as people begin to go out more and restaurants reopen. Despite the potential for a post-pandemic surge in spending on experiences, the panelists believe that Zoom's connections and convenience make it a service that people are unlikely to give up. Overall, the panelists emphasized the importance of watching key metrics like account growth and net dollar retention for both companies as indicators of future success.
Considering Price Hikes and New Features: Zoom vs Gusto: Zoom may lose 15% of users if they double their prices, but they're addressing security concerns and considering Slack-like features. Gusto offers unlimited payrolls, no hidden fees, and excellent customer support.
Zoom, a leading video conferencing platform, is considering adding Slack-like features and increasing their prices. Gusto, an easy-to-use payroll program, was highlighted as an alternative with no hidden fees, unlimited payrolls, and excellent customer support. If Zoom were to double their prices, it's estimated that they might lose around 15% of their users. The discussion also touched upon Zoom's developer flywheel and potential integrations with other apps. Despite initial concerns about Zoom's security and Chinese developers, the company has addressed these issues, and its traction and product-market fit suggest that they could increase prices when the time is right. Meanwhile, Gusto continues to attract customers with its convenience and comprehensive offerings.
Consumers view certain services as essential and non-negotiable despite increasing prices: Consumers prioritize convenience and value over price, leading them to pay for essential services like Netflix and Amazon Prime, even as prices rise. Delivery services like DoorDash also benefit from this trend, although price sensitivity may vary.
Consumers have come to view certain services, such as Netflix and Amazon Prime, as essential and non-negotiable, despite increasing prices. These services have become so valuable to consumers that they are willing to pay anything to keep them. The discussion also touched upon DoorDash and other food delivery services, with some consumers expressing price sensitivity despite not being sensitive in other areas. It was noted that delivery workers were previously being underpaid, and the shift to legal and regulated gig work has led to higher costs for these companies. Ultimately, the panelists agreed that consumers are willing to pay for the convenience and value these services provide, even if the prices continue to rise.
The disconnect between consumer perception and actual value distribution in food delivery and sports streaming industries: Consumers feel they're subsidizing food delivery players, while Fubo TV's undervalued market cap and revenue growth potential from sports streaming and betting make it an intriguing investment opportunity.
The disconnect between the value consumers perceive they're providing to various players in the food delivery and sports streaming industries, and the actual value distribution, can lead to feelings of annoyance and perceived unfairness. For instance, in the food delivery sector, consumers feel they're subsidizing the companies, restaurants, and delivery drivers, despite not doing the actual work. In contrast, companies like Fubo TV, which aggregates live sports and offers sports betting, present an undervalued opportunity. With strong market trends, such as the shift towards OTT apps and the increasing legalization of sports wagering, Fubo TV's $2 billion market cap seems low, especially with backing from industry giants like Disney and Sky Media. The combination of live sports streaming and sports betting could offer significant revenue growth, making it an intriguing investment opportunity.
Twilio's Transition to Data Industry and Amazon's Expansion: Twilio's pivot to data and Amazon's expansion strategies highlight the importance of strategic business shifts and investments in innovation for long-term success. Twilio's omni-channel marketing play makes them a promising investment opportunity.
The cannabis industry has seen a shift in funding sources from Canada to other jurisdictions, and Twilio is poised to become a major player in the data industry as they transition from cloud communications to becoming a data company. Jeff Bezos, CEO of Amazon, has shown impressive growth through acquisitions and product development, but there are concerns about his focus on expansion and writing a book. The success of companies like Apple, which have made large investments in physical infrastructure while continuing to produce innovative products, shows that this approach can be effective. However, there is a risk of distraction from core business priorities. The Twilio's pivot to data and their omni-channel marketing play, which was showcased in their recent earnings call, makes them a promising investment opportunity for the future.
Apple's M1 chip and C3.ai's potential disrupt the tech industry: Apple's M1 chip innovates and increases efficiency, while C3.ai's high valuation and growth potential make it an intriguing investment. However, SPACs' unpredictability and Luminar's pre-revenue status add risk.
Apple's M1 chip is generating significant buzz due to its efficiency and innovation, potentially disrupting the tech industry. Meanwhile, C3.ai, an Enterprise AI company founded by Tom Siebel, is another intriguing investment opportunity with a high valuation and potential for exponential growth in the AI economy. However, the unpredictability of SPACs makes them a risky investment, and it's recommended that experienced investors approach them daily. Additionally, Luminar, a LiDAR company, is a more speculative investment due to its pre-revenue status, but partnerships with companies like Mobileye add to its potential.
SPACs: More Risk, Potentially More Reward for Companies and Investors: SPACs offer an alternative for companies to go public, but investors need to be cautious due to potential risks and uncertain fundamentals of some companies. UiPath and Roblox are examples of companies attracting investor attention, but risks, such as Roblox's dependence on children's online activities, should be considered.
SPACs (Special Purpose Acquisition Companies) have become a popular alternative for companies looking to go public, especially during the current market conditions where demand for IPO shares is high. However, not all companies going public through SPACs are strong performers. Some are second-rate or young companies with questionable fundamentals. Investors need to be cautious and experienced to make informed decisions in this market. Two companies that have caught the attention of some investors are UiPath and Roblox. UiPath, a robotic automation software company, has experienced significant growth and is expected to go public in the first half of 2021. Roblox, a gaming platform popular among children, has also gained attention due to its large user base and potential growth opportunities. However, investors should be aware of the risks involved, especially in the case of Roblox, as the revenue growth may be affected by the return to school and office. Overall, the trend of retail investors participating in earlier-stage companies through SPACs means more risk but potentially more reward. It's essential to closely monitor the market and the specific companies to make informed investment decisions.
IPOs of rapidly growing tech companies: Risks and rewards: Roblox, UiPath, Stripe, and DiDi are potential IPOs with impressive growth rates, but investors need to consider the risks of commoditization or competition from larger players.
The tech industry is characterized by rapidly growing companies, and investors are drawn to IPOs of such companies due to their impressive growth rates. However, the risk of these companies becoming commoditized or facing competition from larger players is a concern. Roblox, UiPath, and Stripe were identified as potential hype offerings due to their strong execution and growth potential. Roblox is a hit-based gaming platform with a large and engaged audience. UiPath is a rapidly growing robotic process automation company with impressive short-term growth, but a potential long-term concern of becoming commoditized. Stripe is a massive processing platform with a huge TAM and a recent expansion into banking as a service, making it an attractive growth stock. DiDi, the Uber of China, was also mentioned due to its potential expansion into groceries and the massive scale of its network in China. However, the geopolitical tensions with China and the recent antitrust actions against Chinese tech companies create uncertainty in the market. Ultimately, investors need to carefully consider the risks and potential rewards of investing in these companies.
Competing with China's Economy: The speaker believes American capitalism has an edge in the economic competition with China due to freedom and criticisms, suggesting higher wages and healthcare to strengthen America's position.
Despite geopolitical tensions and concerns about the competitiveness of the Chinese economy, the speaker believes that American capitalism is in a strong position to win the economic war with China. The speaker criticizes China for its lack of freedom and suppression of criticism, which they argue is detrimental to economic success. They also suggest raising the minimum wage and allowing for universal healthcare as potential ways to address concerns about younger generations and socialism in America. Ultimately, the speaker expresses confidence in the American economy, predicting a 95% chance of victory.
Maintaining the US Entrepreneurial Edge: The US can lead in tech areas like AI and human rights by bringing back manufacturing, automating processes, and upholding freedom and a functional press.
Despite China's technological advancements and manufacturing dominance, the US has the potential to maintain its entrepreneurial edge and lead in areas like AI and human rights. The speakers believe that bringing back technology manufacturing to the US and automating processes with robots can create jobs and reduce dependence on China. They also emphasized the importance of upholding human rights and pushing back against authoritarian regimes, using the example of the ongoing situation in Hong Kong. While there are concerns about potential political changes in the US that could impact business, the speakers are optimistic about the US's long-term prospects and warn against underestimating the importance of freedom and a functional press.
NBA and Hollywood's Prioritization of Financial Gains Over Human Rights: The NBA and Hollywood industries prioritized financial gains over human rights, evident when the NBA silenced a GM for supporting Hong Kong and Hollywood self-censored to appease China. It's important to stand up for what's right, even if it means sacrificing revenue.
The NBA and Hollywood industries have prioritized financial gains over human rights, particularly in relation to China. This was evident when the NBA silenced Houston Rockets General Manager Daryl Morey for supporting Hong Kong's freedom movement, and when Hollywood began self-censoring to appease Chinese audiences. The hypocrisy of these industries' support for causes like Black Lives Matter while failing to stand up for human rights in China was a major point of discussion. It's important to note that the owners of NBA teams, not the players, made the decision to silence Morey. The NBA and Hollywood's actions demonstrate the power of economic influence and the importance of taking a stand for what is right, even if it means sacrificing revenue. Beth Perez and Jason Calacanis strongly criticized these industries for their lack of courage in this situation. For those interested in Beth's perspectives on technology and stock analysis, she offers a free newsletter at Beth.technology, and a $65 a month premium subscription for access to her portfolio and trades. Alex Woodside can be found on Twitter at @alex.woodside.
