Things That May You Go Hmmm... Like Spamazon and Flutter

Tyler Durden's picture

During the first internet boom, the business model of South Park's Underpants Gnomes was commonplace, as scores of companies flooded the marketplace, sustained purely by the promise of future profits that would somehow magically appear. As Grant Williams scoffs in his most recent letter, it was the corporate embodiment of George Costanza’s “yada, yada, yada”: “First we build a company... yada, yada, yada... we make billions.” Of course, most of these companies went the way of the dodo; but remarkably, a mere 14 years after the bursting of the original internet bubble, there are signs of what Yogi Berra so beautifully referred to as “déjà vu all over again” - signs which some real heavyweight financial minds have recently highlighted...

(Seattle Times): Venture capital rising to levels not seen since 2001. Companies with no profits going public. Billions of dollars being paid for startups.


These and other signs that the tech boom may be taking an irrational turn are leading some notable investors to utter the dreaded word “bubble,” waking up the ghosts of an era many in Silicon Valley would prefer to keep buried.


Has Silicon Valley once again lost its collective mind?


Hedge-fund manager David Einhorn thinks so.


“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” he warned in a note to his clients in late April. “What is uncertain is how much further the bubble can expand, and what might pop it.”

Of course, as we saw in 1998/9, there are plenty of people who believe in fairy tales, and they are happy to explain why THIS time is different:

Venture capitalists and entrepreneurs insist the Silicon Valley tech economy is not in bubble territory. Yes, they misjudged just how fast the Internet would change the world a decade ago and let things get a little bit out of hand.


But this time, they say, the revolution of mobile and cloud services justifies big, bold bets. And most of the companies going public are profitable, with real businesses that are transforming the way we live.


To some tech insiders, the region’s economy is in a “Goldilocks” moment. Not too hot. Not too cold. Enough of a boom to be just right.

Seriously?... Goldilocks? Again with that?


The day that rationality returns to investing in technology stocks will be the day that we see some high-flyers (which had previously been given a pass on their poor performance because the promise of a bright tomorrow was just SO compelling) fall to earth in a hurry.

However, so as not to call out any specific companies, I am going to take the South Park approach and lay out a hypothetical fable about one such giant, highflying corporate darling which has been embraced for its willingness to follow the Underpants Gnomes’ ingenious business plan.

Let's call this company... Spamazon

But is there any point in going over the fictional metrics of a fictional internet behemoth just to belabor a point? After all, it’s not as though it actually matters in the real world. And it’s not as if Spamazon is the ONLY fictional company purusing the Underpants Gnomes’ business playbook.

Take Flutter, for example.

The Flutter business model is eerily similar to that of Spamazon:

This surge in companies being awarded huge valuations based solely on the fact that, like the Underpants Gnomes, Phase Three of their business plans calls for gargantuan profits has reached a level seen only once before.

Can you guess when that was?

Yep... the share of companies coming to market with negative earnings reached 74% in early 2014, a level surpassed only in........ drumroll, please........ February 2000.

Eventually, momentum based upon future promises will cease, and when it does (or if it has) then anybody taking a long hard look at the stocks they bought during the mania will find only one word to describe the quality of many of those companies:


Full Grant Williams Letter below...



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HedgeAccordingly's picture

well... one thing is true.. Ackman and Icahn know how to run every single company. -

Flying Wombat's picture

The more things change, the more things remain the same - sort of.

DeusHedge's picture

Bezos is a political hack.

Goldilocks's picture

Tropic Thunder (5/10) Movie CLIP - Never Go Full Retard (2008) HD (2:42)

RyeWhiskey's picture

DOTCOM 2.0 is upon us. Valuations of internet "startups" are in BILLIONS.

Who are the morons this time ?

The man with pointy horns's picture

Please God, when this bubble bursts may it take down Facebook and Twitter. Google to if we are so fortunate. But spare Youtube, I listen to a lot of great music on that site- old gems of the past.

Smegley Wanxalot's picture



Phase 1: come up with a bullshit idea that sounds good.

Phase 2: lose money pumping it thru the idiotic american populice.

Phase 3: IPO it, cash out, and GTFO.

buzzsaw99's picture

i want to puke every time i see those clapping ipo seals bang the gavel at the open. balance a ball on yer nose then go fuck yer grandma bitchez.

nonclaim's picture

As an infrequent customer I see value in Amazon at what it proposes to be and does well.

If the equity price does not represent its value the problem is with with the equity price not the company. "Equity", in a way, has become a derivative and no longer represents a direct(ish) value.

Disclaimer: for years already my trading accounts are collecting nothing but electronic dust and I don't hold any equity or derivatives marketed to muppets any longer.

buzzsaw99's picture

yep, good companies don't always have good stock. samsung used to be like that. i doubt amzn will ever be able to turn it around (value-wise) the way samsung has tho...

Marco's picture

Amazon is such a stupid company to pick on, the only problem with them is that the incoming economic collapse is going to hit them hard ... but them and everybody else. It's not like there is any company (or stock) on the market which takes that into account.

delivered's picture

The pure volume of signals indicating the market is excessively valued is overwhelming. Tech IPOs with no earnings. Check. Record high margin debt. Check. Global geopolitical tensions. Check. Massive uncollateralized debt levels in China. Check. Poor to horrible volume and breadth in equities trading. Check. Credit yield and equities heading in different directions. Check. S&P TTM PE ratios at excessive levels. Check. Stock market total capitalization at historical highs in relation to the GDP. Check. Mysterious buyers of US debt (i.e., Belgium). Check. I'm sure everyone on ZH can expand this list probably by double or triple with no problem at all but this is the actual problem. With so many black swan type events that are lurking just around the corner, one of these items should have come home to roost already but it hasn't as the markets just continue to move higher, with no worries.

So one of three explanations must be present. First, it really must be different this time! Second, we are on the cusp of one of the greatest economic expansions the world has ever witnessed (so all of the TTM PE ratios are worthless as forward PE ratios are the only thing to focus on). Or third, the world CB's have completely and utterly distorted freely functioning capital markets and have rigged it so interest rates will never rise, real estate will always increase in value, and equities will continue their upward trend, in a perfect linear fashion for decades to come. My guess is on the CB's as with $10+ trillion injected into the world's economies over the past 5+ years, there's alot of cash that needs to be rolled over from one investment to the next, always looking for a new home, regardless of economic price fundamentals.

To be quite honest, I believe the CB's have distorted the capital markets to a point of no repair or revision to the mean unless a macro level event/shock is realized that is comprised of social, economic, political, military, and environmental unrest. The CB's are simply not going to let these markets collapse again (equities, real estate, credit, etc.) as to watch another implosion over a 15 year period (2000-2002, 2007-2009, and ???) would spell their death. Just too much liquidity/cash manufactured over the past five years, always looking for a new home.

As for the tech company IPOs, you think 74% is high now, wait for another year or two. Once the big dogs begin to take marketshare in the cloud space from weaker competitors via price wars, look out below. And once FB, Twitter, and all of the other social media sites realize organic customer growth is dead and they either have to buy users (already happening) or worse yet, begin to cannalabize or poach users from other sites, again, look out below. Adding more fun to this will be the fact that the larger players (both tech based and traditional retail) will not be able to resist the tempations of all of those mobile retail sales occuring and generating revenue and will attack this market aggressively. While competition may be good for the consumer, it will be brutal on the poorly run and undercapitalized tech companies that wake up one day, and have to respond to the analysts on why user counts are falling and more importantly, why dwell time or engagement time on their sites is dropping like a rock. Again and just like 2000/2001, the carnage will be severe.

disabledvet's picture

"It's the money's on the floor pick it up."

These things are always's not a question of any of thus pointing it out but whether you can see it in yourself.

I have maintained throughout that when making public policy there is no worse assumption than thinking "the money will always be there."

To be sure...far worse not to start The Enterprise...but the economics profession exists because there is nothing more human than mass delusion.

Dr Benway's picture

There is more money to be made from raising money for business than there is money to be made from actual business.

Therefore an ever greater proportion of our society is swallowed by the cancer of financialization and fraud, crowding out actual enterprise and productive activity.

AUD's picture

Financialization IS fraud, unless the quality of the 'goods' being financialized is regulated, and I don't mean by government fiat. 

Dr Benway's picture

What, really? But I thought markets could regulate themselves. And hilariously, so do the regulators.

A friend told me once that you never need to wash your hair, leave it long enough and your hair will create salts cleaning itself. He smelled pretty bad btw.

therevolutionwas's picture

Is it the need to get info out at light speed rate that is the reason for the growing sloppy editing I have been seeing everywhere online?

Seasmoke's picture

Dr. Dre. Says It BEATS working for a living.

epobirs's picture

Back in the 90s, my attempt at a job took me to a lot of tech trade shows. In the latter half of the decade it became less about the latest chip or device built around that chip. Instead there were massive booths for web sites that gave away some kind of service. I always had the same question: "At what point does this result in somebody giving you more money than it costs to run the operation?" By the late 90s the reaction to this question became remarkably hostile, as if I asked about their personal sexual history or suggested their family tree didn't branch sufficiently.

But investors would throw amazing sums of cash at these obvious sinkholes. I lacked their education but was at a loss to understand what I was missing. It turned out what I was missing was the insanity of the market in a bubble. I had read Mackay's 'Extraordinary Popular Delusions and the Madness of Crowds' but couldn't really process what it meant until I saw the madness first-hand.

homiegot's picture

I miss the days when we made shit.

kchrisc's picture

Going to invest/party like it's 1999 all over again...

zeronero's picture

That's great. Except, Amazon is driving bricks and mortar stores to close. So sooner or later they own retail. Then, watch the margins improve and the billions flow to bottom line.

starman's picture

neh live me alone, Im just crushing my fucking candies!