I think the tech world is wrong about a major factor: moats.
In the technology world, we see companies like Uber with obnoxiously high valuations – more than Fedex and Capital One, based mostly on FOMO – Fear Of Missing Out by investors.
I call Ponzi.
Granted, this is bias, so I’ll examine it. Why might Uber truly be worth $50,000,000,000? Income – revenues. Some think the company can bring in $2 billion in revenue this year.
Income doesn’t mean much – profits do.
At what cost is Uber generating revenue? And how defensible is this moat? Sure, they’re growing 300% per year, but losing $470,000,000 to do it. It’s easy for entrepreneurs to feel like slack-jawed idiots if not growing this fast.
We live in an era of disruption, and companies are being valued based on their old-world moat multiples. The fact is, we’re in an age of gunpowder. Whatever moat you think you have is in many cases, not as wide or useful as you think.
Furthermore, I see “the groupon effect”: we condition people to expect more for less, free, smoking bargains. Groupon promises retailers new traffic, but what really happens is they get deep-discount-seekers, who quickly move on to the next groupon. The vast majority don’t stick around and become solid paying customers.
The moment Uber raises their prices, we’ll see driverless cars (from Tesla? Peer-based self-driving car lending from getaround?), and the bubble deflates.
The envelope of profit I believe is drastically overvalued, and the investors will be left holding the bag.
When gunpowder moved from China to Europe, it disrupted warfare. Disruption is when a better, superior system upends the status quo. Shortly thereafter, gunpower rendered swords and castles largely irrelevant – expensive, drafty, useless homes impossible to defend, and hard to get out of. We had moved to tanks, then aircraft. Castles were easy to hit.
Cash flow is the land grab our era, and it’s more fluid than it used to be.