Frustration is the compost
May 8, 2019

Blain's Morning Porridge

"Frustration is the compost from which the mushrooms of creativity grow…"

I'm not happy… It's early doors in London, and already I'm utterly drained – modern life is just too difficult.

First, BT goes on my s**t list after the broadband in the London flat failed last night, meaning none of my carefully set up market searches, alerts and warnings were triggered. I tried to sort the fault via their extremely unhelpful reset instructions, but you can't actually speak to anyone as it's a circular torture loop designed by a particularly twisted psychopath. It was impossible, so I had to come into the office at sparrows to get a working signal.

On the way I stopped in Pret for a coffee and my favourite excellent avocado and bacon sandwich. In the first Pret they were still filling the shelves - the chap said he was sorry, but the avocado and bacon wasn't ready yet.

So I wandered up the road to the next one, where the chap there told me: "We don't do avocado and bacon any more, they didn't sell.." I expressed some surprise as they'd sold out just the other day… He said he was sorry and I chose something else. As a consolation he told me the coffee was on the house.

Excellent! Some upside. But no – he then charged me for it anyway. Somewhat miffed I suggested that offering me a free coffee and then charging me for it wasn't a great customer retention practice - he shrugged. 

Have you ever tried to get a BT fault resolved? Good luck - it's impossible. What do you do when a counter assistant decides to mind-crash you? Pret and BT achieve the distinction of going onto the list of companies I've cast my "Go Bust" curse upon. And, it wasn't a very good coffee..

Meanwhile, back on Planet Market. This is not going to be yet another: "Oh, look at the madness of buying tech stocks that don't make any money" stories. 

But, seriously…. Would you buy a company posting revenues of US$1.8 billion, substantially smaller in quantum than its $1.9 billion total losses, where the CEO was once quoted in Forbes: "our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue"? In normal markets, you probably would not. You would smile, marvel at the madness of this peculiar technical age, and probably pass up on the opportunity. 

But these are not normal markets. With rates lower for longer, returns being difficult to come by, stock markets moving higher by the day, the peculiar market force known as FOMO (fear of missing out) drives everyone to analyze the risks of not participating rather than downside risks to the issuer.

The company I referenced above has now filed for its IPO (initial public offering) on a likely $47 billion valuation… No, it's not Uber. It's the other one. The property company that thinks it's a fintech/work-life-balance paradigm shift.. We will talk about them later… 

The glut of recent tech IPOs has got a bunch of stockpickers wondering if it all means we're approaching the very top of the tech bubble. They suspect Uber and WeWork will be the last hurrahs before the inevitable burst! Those of us who remember the peak of the Dot.Com bubble will recall the improbable pet food companies funding at 100x multiples just before that popped.

I'm thinking: if we are at the top of the tech IPO market: excellent!!! If it makes the sector cheap then I'm in to buy more! The success of disruptive technology, new consumption patterns, and how they have compacted and utterly changed the TAM curve (technology acceptance model), has truly changed the world and provided stellar returns for investors.

Look at the long-term upside from names like Facebook (a genuine monopoly), the screaming success of Amazon and what it has generated for investors (and particularly Jeff Bezos), or Alphabet which dominates its space.

Look what Apple has done in dominating retail with just a couple of products. These firms, and others, have genuinely changed the world and produce stellar returns. Some make loads of money. Some don't. You would have to be incredibly dumb to dismiss them. They are investment cash cows today, and probably for some time to come. 

Great ideas that profitably change the world are eminently investible – with care. Some players think the results don't actually matter as the upside is in their price. They may be right. Price is about perceptions of the future. When the marginal cost of adding a consumer is zero, what's not to like about companies that look and behave like monopolies?

But, while returns have been stellar, maybe it's time to really assess the risks. While some companies are excellent, I doubt anything is a monopoly for long. They may change the world, but the world itself changes. Companies have much shorter shelf lives today than they did in the past. The world moves fast.

Here's just one example: Netflix has genuinely changed viewing habits. It costs Netflix nothing to add customers. Brilliant! However, the marginal cost to Disney's streaming service of a customer watching Frozen is zero. Netflix has to pay a licence fee if its customer wants to watch it.  Content is where the value is in that model.

Take a look at the other side of that compacted TAM model – how long something remains new and valuable. In Facebook's case most folk worry about regulatory risk, but it's about fashion - my kids only post on FB so Grandma can see where they have been. It's hardly cutting-edge youth culture anymore. How much will Facebook make tomorrow if advertisers perceive it's largely wrinklies like ourselves using it?

Amazon has built itself a fortress based on its size and spend – but basically there is nothing stopping anyone else creating a cloud-based superstore. Except loads of money… an understanding of logistics, drones and whatever else. That's why I'd like Amazon to be cheaper!

Uber and Lyft have absolutely changed the way we think about personal transport services. I've been taken to task for calling them taxi apps as they don't own a single taxi or employ a single driver (a matter the unions are taking to the courts and threatening a strike ahead of the Uber IPO), and they are investing billion in autonomous and driverless vehicles that will/might make them even richer.

But, they've both been using predatory pricing to wipe the competition to make themselves the go-to apps. Yet, any teenager knows how to arb the multiple transport apps they have access to. A few years ago, a taxi app was a thing of wonder and magic. Today? It costs surprisingly little to set up a taxi app – which is which is why every mini-cab company now has one. Sure, Lyft is about the future.. what future is that I wonder?

(Editor's note: at this point, the editor, only a year or two older than Bill, yet feeling more and more like a doddery High Court judge, is asking himself yet again, What IS a taxi app? Are Mrs Editor and I the only people who have never SEEN one, let alone used one?)

Despite assuring investors its losses will diminish, Lyft – the last big IPO, is trading 26 percent below where it launched last month. Second quarter revenues will be $800 million according to the company, but it lost $1.14 billion – mainly on IPO expenses and "stock-based compensation". Ah. Light bulb moment. Guess that's why the CEO said it was "peak losses".

The other thing to come out from Lyft is the intense competition with Uber – no surprise. It admits competition is "extending its losses". Uber says the same thing. Uber's IPO this week could be the largest in years, and is expected to price aggressively. But who cares? Both Lyft and Uber are adding "active users" which costs them nothing, but adds to the bottom line.. (er.. what bottom line?)

In case you are still wondering the other IPO coming up is WeWork. Now, if a company whose disruptive, paradigm-shifting tech IP is renting/buying old buildings, doing them up cheap, and handing out free pizza and beers to tenants on a Friday, is worth $47 billion, then whoopee! I do hope it crashes the market so I can buy the good stuff cheap!

The bottom line is some stuff is worth it...others probably aren't. Now where can I get an avocado and bacon sandwich?

Out of time and back to the day job

Bill Blain 

Shard Capital





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across fundservices.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

Blain's Morning Porridge

"Frustration is the compost from which the mushrooms of creativity grow…"

I'm not happy… It's early doors in London, and already I'm utterly drained – modern life is just too difficult.

First, BT goes on my s**t list after the broadband in the London flat failed last night, meaning none of my carefully set up market searches, alerts and warnings were triggered. I tried to sort the fault via their extremely unhelpful reset instructions, but you can't actually speak to anyone as it's a circular torture loop designed by a particularly twisted psychopath. It was impossible, so I had to come into the office at sparrows to get a working signal.

On the way I stopped in Pret for a coffee and my favourite excellent avocado and bacon sandwich. In the first Pret they were still filling the shelves - the chap said he was sorry, but the avocado and bacon wasn't ready yet.

So I wandered up the road to the next one, where the chap there told me: "We don't do avocado and bacon any more, they didn't sell.." I expressed some surprise as they'd sold out just the other day… He said he was sorry and I chose something else. As a consolation he told me the coffee was on the house.

Excellent! Some upside. But no – he then charged me for it anyway. Somewhat miffed I suggested that offering me a free coffee and then charging me for it wasn't a great customer retention practice - he shrugged. 

Have you ever tried to get a BT fault resolved? Good luck - it's impossible. What do you do when a counter assistant decides to mind-crash you? Pret and BT achieve the distinction of going onto the list of companies I've cast my "Go Bust" curse upon. And, it wasn't a very good coffee..

Meanwhile, back on Planet Market. This is not going to be yet another: "Oh, look at the madness of buying tech stocks that don't make any money" stories. 

But, seriously…. Would you buy a company posting revenues of US$1.8 billion, substantially smaller in quantum than its $1.9 billion total losses, where the CEO was once quoted in Forbes: "our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue"? In normal markets, you probably would not. You would smile, marvel at the madness of this peculiar technical age, and probably pass up on the opportunity. 

But these are not normal markets. With rates lower for longer, returns being difficult to come by, stock markets moving higher by the day, the peculiar market force known as FOMO (fear of missing out) drives everyone to analyze the risks of not participating rather than downside risks to the issuer.

The company I referenced above has now filed for its IPO (initial public offering) on a likely $47 billion valuation… No, it's not Uber. It's the other one. The property company that thinks it's a fintech/work-life-balance paradigm shift.. We will talk about them later… 

The glut of recent tech IPOs has got a bunch of stockpickers wondering if it all means we're approaching the very top of the tech bubble. They suspect Uber and WeWork will be the last hurrahs before the inevitable burst! Those of us who remember the peak of the Dot.Com bubble will recall the improbable pet food companies funding at 100x multiples just before that popped.

I'm thinking: if we are at the top of the tech IPO market: excellent!!! If it makes the sector cheap then I'm in to buy more! The success of disruptive technology, new consumption patterns, and how they have compacted and utterly changed the TAM curve (technology acceptance model), has truly changed the world and provided stellar returns for investors.

Look at the long-term upside from names like Facebook (a genuine monopoly), the screaming success of Amazon and what it has generated for investors (and particularly Jeff Bezos), or Alphabet which dominates its space.

Look what Apple has done in dominating retail with just a couple of products. These firms, and others, have genuinely changed the world and produce stellar returns. Some make loads of money. Some don't. You would have to be incredibly dumb to dismiss them. They are investment cash cows today, and probably for some time to come. 

Great ideas that profitably change the world are eminently investible – with care. Some players think the results don't actually matter as the upside is in their price. They may be right. Price is about perceptions of the future. When the marginal cost of adding a consumer is zero, what's not to like about companies that look and behave like monopolies?

But, while returns have been stellar, maybe it's time to really assess the risks. While some companies are excellent, I doubt anything is a monopoly for long. They may change the world, but the world itself changes. Companies have much shorter shelf lives today than they did in the past. The world moves fast.

Here's just one example: Netflix has genuinely changed viewing habits. It costs Netflix nothing to add customers. Brilliant! However, the marginal cost to Disney's streaming service of a customer watching Frozen is zero. Netflix has to pay a licence fee if its customer wants to watch it.  Content is where the value is in that model.

Take a look at the other side of that compacted TAM model – how long something remains new and valuable. In Facebook's case most folk worry about regulatory risk, but it's about fashion - my kids only post on FB so Grandma can see where they have been. It's hardly cutting-edge youth culture anymore. How much will Facebook make tomorrow if advertisers perceive it's largely wrinklies like ourselves using it?

Amazon has built itself a fortress based on its size and spend – but basically there is nothing stopping anyone else creating a cloud-based superstore. Except loads of money… an understanding of logistics, drones and whatever else. That's why I'd like Amazon to be cheaper!

Uber and Lyft have absolutely changed the way we think about personal transport services. I've been taken to task for calling them taxi apps as they don't own a single taxi or employ a single driver (a matter the unions are taking to the courts and threatening a strike ahead of the Uber IPO), and they are investing billion in autonomous and driverless vehicles that will/might make them even richer.

But, they've both been using predatory pricing to wipe the competition to make themselves the go-to apps. Yet, any teenager knows how to arb the multiple transport apps they have access to. A few years ago, a taxi app was a thing of wonder and magic. Today? It costs surprisingly little to set up a taxi app – which is which is why every mini-cab company now has one. Sure, Lyft is about the future.. what future is that I wonder?

(Editor's note: at this point, the editor, only a year or two older than Bill, yet feeling more and more like a doddery High Court judge, is asking himself yet again, What IS a taxi app? Are Mrs Editor and I the only people who have never SEEN one, let alone used one?)

Despite assuring investors its losses will diminish, Lyft – the last big IPO, is trading 26 percent below where it launched last month. Second quarter revenues will be $800 million according to the company, but it lost $1.14 billion – mainly on IPO expenses and "stock-based compensation". Ah. Light bulb moment. Guess that's why the CEO said it was "peak losses".

The other thing to come out from Lyft is the intense competition with Uber – no surprise. It admits competition is "extending its losses". Uber says the same thing. Uber's IPO this week could be the largest in years, and is expected to price aggressively. But who cares? Both Lyft and Uber are adding "active users" which costs them nothing, but adds to the bottom line.. (er.. what bottom line?)

In case you are still wondering the other IPO coming up is WeWork. Now, if a company whose disruptive, paradigm-shifting tech IP is renting/buying old buildings, doing them up cheap, and handing out free pizza and beers to tenants on a Friday, is worth $47 billion, then whoopee! I do hope it crashes the market so I can buy the good stuff cheap!

The bottom line is some stuff is worth it...others probably aren't. Now where can I get an avocado and bacon sandwich?

Out of time and back to the day job

Bill Blain 

Shard Capital



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site

More on:  Market commentary