Originally Posted by
Trip7
Indeed an excellent discussion about two different investing styles. I'm glad you mentioned companies like Apple and Amazon. Contrary to popular opinion, companies like Apple and Amazon didn't burn thru a staggering amount of cash in its early days:
It turns out the assumption that successful tech companies burned lots of cash in their youth isn’t merely wrong—it’s staggeringly wrong. Look closely at the early days of the giants—the Fab Four, as we’ll call Amazon, Apple, Facebook, and Google (now Alphabet), and you’ll see that they were models of frugality compared with the new wave (which we’ll dub the Breakneck Burners: Tesla, Uber, Lyft, and Snap).
It’s true that in the dotcom frenzy of the early 2000s, many tech companies posted losses while devouring new funding. But the ones that burned piles of cash were such failures as Webvan and
eToys.com, not winners like Google. Today, says accounting expert Jack Ciesielski, “you’ve got these companies chewing through mountains of cash, and investors are comparing them not with the failures of the dotcom era but with the survivors.”
https://fortune.com/2019/06/20/cash-...ber-lyft-snap/
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As a personal preference, I don’t use accountants to guide my investing.
As for burning through cash; if that’s a concern at this phase in their growth, consider they expect to be FCF positive for all of 2020. Think about how quickly they came from their nearly fatal balance sheet to where they are now. They’re just getting started.
As for the reason for the cash burn; look at where that cash is going....the development of the S, X, 3, Y and Cybertruck? Battery development? Built out of
factories (both for autos and batteries)? Build out of supercharger network? Build out of mobile
support fleet? Self driving software? Software beyond self driving? Build out of salesforce?
They’re investing, it’s not as if Elon is just taking this cash and buying pot :-)
We are in a new era of companies; I’m not sure if I’ve said it yet (haha) but traditional metrics used by academia and talking heads are utterly useless.
Look at the gross margins of these SaaS companies. Who's had those types of margins
in the past? Nobody.
Look at how easy it is to scale now - compared to the past. Takes very little capital and very few boots on the ground. Was it like that in the past where everything was physical?
Look at subscriptions? That revenue and whatever you retain largely goes right to the bottom line. And it is repeatable.
With Tesla, what is the #1 car company, the #1 power company and tons of subscription possibilities (self driving taxi fleet, software updates, etc....) worth? Much more than looking at historical data ratios. It will take a lot to get there, but I can see that path.
What is Fiat-Chrysler spending their FCF on? Advertising? Auto manufactures as they exist are dead.
Keep the thoughts rolling! Lots of good things to reflect on in this thread. Ultimately we all want the same thing: $$$$$$$$ :-)