#80 - Whitney Wolfe Takes Bumble Public, Stock Market Bubbles and The Next 50 Years In Tech
In this week's episode of Reformed Millennials, Joel tackles the 🐝Bubble Narrative in the market update, Broc breaks down the next 50 years in technology and a brief overview of the Bumble IPO. This is a super fun episode - Broc takes the lead as we do more work researching the Canadian private markets.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
⚠️ FAAMG is the New Relative Benchmark for Valuations
Instead of Price/Sales or Price/Earnings, high-potential tech companies are subconsciously being valued on Price / FAAMG, or a probability that those companies will become as big as today’s biggest, and it’s not crazy. If certain parts of the market feel bubbly, these companies don’t. They’re category-defining companies that continue to grow and innovate at a faster clip than mega-caps ever have before, and they trade at very reasonable NTM EV/EBITDA multiples:
Apple: $2.273 trillion / 22.0x
Microsoft: $1.848 trillion / 24.8x
Amazon: $1.651 trillion / 22.4x
Google: $1.415 trillion / 15.4x
Facebook: $770 billion / 13.1x
Traditionally, companies are valued based on a multiple of their earnings or profits per share (Price/Earnings or P/E), or if they’re earlier in their journey and growing fast but still unprofitable, on a multiple of their revenue (Price / Sales or P/S), or a free cash flow multiple, or some other financial metric.
But today, in both private and public markets, with P/E and P/S ratios at uselessly high levels, it seems like companies are being valued on a rough probability that they can become as big as the biggest companies, which are themselves more valuable than ever before. With the $1 trillion barrier broken, and $2 trillion taken down within a year, there’s no more psychological ceiling. That’s where the seemingly crazy prices are coming from.
Now of course, this kind of valuation takes a healthy dose of optimism, and this market is ripe for dreaming, for reasons we’ve covered before:
Tech Strength. Tech companies are actually benefiting from COVID as more activity and commerce moves online.
More Cash and Envy. US personal savings rates doubled, from 7.3% to 14.1%, over the past year. People are seeing their friends get rich and want to put their savings to work.
The Fed. The Fed is printing money, and providing a backstop that makes risky assets less risky.
Rates are at all-time lows. That means money is cheap and investors are turning to equities (and alternative assets, including venture) for yield. It also means that…
Discount Rates are low. Discount rates are how investors figure out what future cash flows are worth today. We’re not there, but for illustrative purposes, a discount rate of 0% would mean that an investor values $1 billion generated in 2031 as much as $1 billion generated today.
In a structurally risk-on environment, people aren’t looking for reasons not to invest, they’re looking for justifications to invest. They want to put their money to work and they don’t want to miss out on the next $100 billion, $1 trillion, or even $2 trillion company.
🐝Bumble Went Public🐝
Bumble is sure to be one of 2021's most popular IPOs. The dating company went public on Thursday last week. It fetched a pre IPO valuation of roughly $7 billion, with $416.56 million in revenue recorded over the first nine months of 2020, an increase of 14.86%.
Though many will be familiar with the yellow 🐝bee app, that product represents just half of their story.
Badoo, a dating company popular in Europe and Latin America, is also part of the package investors are buying.
Not only is that company inextricably linked with the Bumble story, but it also poses fascinating questions, hinting at future geographical expansion and alluding to weaknesses in the messaging that has made a "women-first" empire tick.
Maybe its because I’m married or because I’m old, but I’m not a huge fan of the company at these prices and would prefer to take action in MTCH. - Joel
Want to learn more about our thoughts on Bumble?
🦄Bitcoin and Ethereum Rip🙈
$BTC.X breaks 50K while Ethereum eclipses $1,775 over the weekend. $ETH.X is already up more than 140% in 2021. 👀
We have talked a lot recently about the meme stocks like GameStop Corp. One thing I have said about this rally is that it reflected Reddit traders’ correct understanding of a simple market dynamic, which is that if they all bought the same stock at once then it would go up. So they did. Institutional Bitcoin adoption, as we have also discussed, has a somewhat similar dynamic: Each time a big institution says “we like Bitcoin now,” Bitcoin goes up, because widespread mainstream institutional adoption is clearly bullish for Bitcoin at this point. So if you are a big institution or corporation, you can make some free money by
announcing “we like Bitcoin now,”
watching Bitcoin go up, and
selling the Bitcoins you bought for a quick profit. (Or keep them as a bet that other institutions will do the same thing and you’ll make even more profits.)
This dynamic, separate from any particular institutional decision, is good for Bitcoin: If it’s in every big bank’s and corporation’s short-term financial interest to quietly buy some Bitcoins and then noisily make a show of adopting Bitcoin, then a lot of them will, which will have the effect of pushing up the price (both because of their buying and because of their announcements). Unlike meme stocks, there is no underlying business, no cash flows that do or don’t make the price make sense: The price of Bitcoin makes sense or not purely as a social fact; if there are “fundamentals,” they are things like “widespread mainstream adoption,” which you can provide. “The fundamentals of Bitcoin are strong, look, Morgan Stanley is buying some,” Morgan Stanley could plausibly say, after buying some Bitcoins. So it might as well do that.
With the meme stocks, the natural thing was to worry about the endgame for that process; you can’t have a stock price that is divorced from fundamental value forever. With Bitcoin, you ... can? Like if the endgame for Bitcoin was “universal adoption by corporations and institutions as a digital store of value,” then that sounds like a good and permanent and somehow fundamental result?
🌊Best Links of The Week☔
Chinas Racist Cameras? It's now clear that every Chinese manufacturer of connected cameras has included tools to spot people of different racial backgrounds by their facial features, and in particular to spot Uyghurs. The machine learning techniques to do this are now well-understood and mostly a commodity (though still very prone to errors). In addition, many of them also claim to be able to detect 'emotion' or 'political opinion', which is pure junk science. Anyone who doesn't work for the Chinese government probably has the same opinion of this, so what do you do if you need to buy cameras? Amazon does, and did, so now what?
Ford is partnering with Google, and VW with Microsoft. This is partly about tools for autonomy, connected car and EV software, and also about 'digital transformation', a marketing slogan that denotes a generational shift in enterprise tech. The shift to EVs (never mind AV) makes software matter far more, and 'learning software is easy' has killed a lot of big companies, but I'm not sure that's what happens here.
Shopify has connected its unified payment system to Facebook and Instagram, allowing Instagram shops built on Shopify to do a one-tap purchase. Shopify is trying to follow the 'come for the tools, stay for the network' thesis - if everyone has a Shopify pay account and it works everywhere then Shopify will have a network effect. (Note: Shopify's Q4 results are out this week - it did $80bn of GMV in the first three quarters of 2020, so guess what Q4 could look like)
Where others see a rising naval power, I see a trapped coastal fleet incapable of projecting power, much less patrolling its far-flung economic interests. Where others see the workshop of the world, I see a radically unstable system propped up by Enron-style finance which survives only due to the strategic largesse of increasingly-hostile foreign powers. Where others see 1.4 billion people, I see one of history's fastest aging and shrinking demographics in a country that will – in the best-case scenario – see its population shrink by half this century. Life After Trump
Benedict Evans, the great unbundling presentation. “Covid brought shock and a lot of broken habits to tech, but mostly, it accelerates everything that was already changing. 20 trillion dollars of retail, brands, TV and advertising is being overturned, and software is remaking everything from cars to pharma. For that and lots of other reasons, tech is becoming a regulated industry, but if we step over the slogans, what does that actually mean? Tech is entering its second 50 years.
CBInsights 12 Tech Trends to Watch in 2021. “Futuristic tech havens. The quantum time bomb. Psychedelic medicines. AI that can read your emotions. Here are the top tech trends poised to reshape industries in 2021.” *opt-in
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