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"It's Different This Time" Or "Same As It Ever Was"

Tyler Durden's picture




 

Authored by Mark St.Cyr,

Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley, the immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.”

If one posed any real push back as to move nebulous assertions out from the sky and back into more true ledger accounting? Those “looks” turned into outright disdain, and disgust followed with ridicule as the assertions of “It’s different…” and “You just…” morphed into closing statements as to implicitly cement the questioning door closed. For to go any further, it was a waste of their time and/or breath. After all, why try to prove you’re right when today’s version of the teenage “Because! Just because!” works just as handily.

Over the past few years that defense has worked splendidly. Only problem? Just like with teenagers; there comes a time it no longer works. This is where the once go-to responses begin to work against – not for. Welcome to same as it ever was. Or, one could say, “Welcome back to reality.” Where nebulous business plans no longer attract attention never-mind – cold hard cash.

As a matter of fact, what has been recently embraced as some entrepreneurial birthright in Silicon Valley (i.e., VC funding at the whim) seems to be going the way of “Because…” itself.

You’re not hearing precise reasoning or explanations for it (although the reasons are as clear as day: No QE.) However, what you are beginning to now see are the inevitable storm clouds moving from the horizon, and making landfall. All one needs to do is get their heads out-of-the-clouds and start reading the writing on the walls right in front of them. For the messages they portend are writ large – if one wants to see. Here are a few that have caught my attention…

A few weeks ago I was watching a Bloomberg™ morning show where the guest was one of social media’s well-known aficionados. (I’m not being coy by not naming, it really doesn’t matter) During the discussion there were a few things that struck me. One was the on air tension. It seemed the more the questioning – the more antagonist or dismissive the retorts became. Another was in response to a question about Twitter™. The response? “Do people even use Twitter any longer?” For he implied he’d already moved from there to another platform. Which in many ways validates what I’ve stated for years and have been publicly scorned for: “When the price is free – loyalty is as enduring as a Unicorn’s balance sheet is real.”

Another point to ponder is this: Let’s put aside anything IPO for a moment and look directly at the VC funding meme. Remember (for it wasn’t all that long ago) when those in the VC world were being touted as some form of Superheros to the rescue? As a matter of fact one prominent website to this very topic sported a drawing depicting many as just that with capes, costumes, and more.

It seems that maybe there’s just a few too many seeking their birthright VC money in today’s market environment.

Just 12 months ago VC firms and others would be hosting “come one – come all” stylized events or meetings as to vet the latest group to be showered with some form of initial funding. The game (as I had written about previously) had morphed into more of a numbers game funded via the hot money provided by the Fed’s ongoing QE policy. i.e., Throw money at all of them, for the IPO’ing of just one will make all sins disappear. However, that meme is showing signs it to is going the way of “its different this time.”

Today you don’t need to look deep (for it’s everywhere if you want to see.) All you need to do is look. There are articles sporting titles along the lines of “Why you shouldn’t seek VC money” and more. And not from obscure names. Some are from the very people who only months ago were depicting as VC superheros. Quite a shift and peculiar timing one might infer, no?

So what about “everything social?” After all, social media is the “be all – end all” platform in which all dreams are made (and cashed out.) Again, after all, everyone still instinctively points to Facebook™ as the continuation of promised milk and honey. “Just look at their stock price!” is shouted. Another is “Just look at mobile: they’re killing it!” “You don’t understand: it’s different this time!” Sure it is. All I’ll point to for a contrasting argument is AOL™.

Facebook currently sports a market cap larger than GE™, Johnson & Johnson™, Walmart™, and a host of others. These are not trivial companies by any stretch. However, there is one very distinct difference that should not be lost. They sell products and buy ads. Facebook primarily sells only ads (and all your data but that’s for a different discussion.) In the last bubble AOL also fell into this same paragon of ad-based business models. It was unique, email was “the hottest thing.” Banner ads (remember those) was the next be all, end all to advertising. Till – it wasn’t.

AOL-Time Warner™ stood with a market cap of some $350 BILLION dollars in 2000. It was for all intents and purposes “the king” of ad sales in the every growing, and developing, tech based medium. Then, the bubble burst (i.e., the recession took hold) and ad sales literally dried up crushing AOL and anyone else supported purely on an “ad” model.

Yet, let’s not forget about the one thing that takes place right before such a hatchet bears down on ad revenues that many just don’t contemplate. For AOL did have real ad sales as does Facebook. And right before the bottom fell out AOL was also (much like Facebook is today) being pushed ever higher in valuation.

That “thing” is this: Right before the axe falls – the preceding volume of ad buying becomes more concentrated. Any and all peripheral ad money gets bundled and focused into one medium more than the others in what could be classified as a “Hail Mary” seasonal cycle buy. This is how I look at Facebook’s latest earnings report. The meme of “they’re just killing it/firing on all cylinders” hearkens to my ears just what happened before the implosion of “everything dot-com.”

I am still of the belief the “everything social” is not “it’s different this time” but more of “the same as it ever was.”

The latest retail sales report wasn’t bad – it was horrible. Once again missing expectations. But there’s a much bigger problem. More and more retailers are reporting abysmal earnings reports. Macy’™, Nordstrom™, Walmart™ and others are reporting nothing more than anyone with a shred of common sense knows intuitively as summed up so succinctly by retail maven Howard Davidowitz when speaking on the challenges of retail malls: “…what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”

Current ad spending by retailers as of this writing I believe fits into the same description echoed by Mr. Davidowitz: It’s not rocket science.

Facebook and a few others are going to be the go-to recipients of any and all “Hail Mary” ad buys for this coming earnings quarter and holiday season. Just like with what has taken place with previous assigned “Holy Grail” inspired ad platforms.

If retail sales for this shopping season mirror anything close to what this past report portends? Again, just look to AOL post 2000 for hints. Ad revenue went from robust to abysmal in the blink of an eye.

In 2001 AOL was still considered “the hottest, biggest, bad ass of everything ad/internet generating revenue.” By 2002 it’s $2.3 BILLION in ad revenue would be cut in half. Then just a year later it would fall even further to nearly cutting itself by another third if not half once again. Till finally AOL became “Who?”

For comparison: Facebook is now just about the same size in market cap as AOL was in 2000. The parallels are striking if one dares to look back with any quantitative as well as qualitative analysis eschewing any “it’s different this time” reasoning.

For further clues I’ll only point just a few more…

First: Isn’t it just a little odd or, at the least something that makes you go Hmmmmm when none other than one of the most prominent cheerleaders of everything VC and/or social Marc Andreessen sells 73% of his Facebook stock in the last two weeks?

If that doesn’t inspire a change in thinking maybe the following will. For if there’s anything to be gained for insight such as the much touted “front page article” to mark a bubble. How about the very week Facebook hit its peak share price the following was reported with great fanfare. To wit: President Obama announces launch of his very own Facebook page.

Remember, government has been shown to be with near Swiss watch precision – the last to arrive to the party.

Oh, and one last point just for a little more context. Remember I said at the beginning of this article to put aside anything IPO for the moment? I was scorned and ridiculed by many (especially those within The Valley itself) when I penned an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op” Yet, a funny thing has shown itself on its way to “Unicorn paradise.”

The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation. That while simultaneously the other company Mr. Dorsey is heading up as CEO (Twitter) once again falls below its IPO price. So now, with all that said, the only question one needs to ask and answer is this:

It’s different this time? Or: same as it ever was?

We’re going to find out much sooner than later. That I’m sure of.

 

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Sun, 11/15/2015 - 21:17 | 6797867 world_debt_slave
Sun, 11/15/2015 - 21:27 | 6797909 knukles
knukles's picture

Ah, but for the good old days of "burn rates" and "multiples of projected gross sales"

Sun, 11/15/2015 - 21:55 | 6797993 Keyser
Keyser's picture

I'm having deja vu from the late 90's... So much hopium, so little substance... 

Sun, 11/15/2015 - 22:40 | 6798120 JD59
JD59's picture

Its called PSYOPS.

Sun, 11/15/2015 - 23:10 | 6798202 Tall Tom
Tall Tom's picture

When Macy's and Nordstrom customers (the rich) do not have money then the cold hearted financial gaming bastards begin to know and understand how it feels.

 

Have a Merry Christmas.

 

And welcome to the state of want. I hope that your visit will be a permanent one.

Tue, 11/17/2015 - 20:28 | 6806916 knukles
knukles's picture

JUst a BTW, Mrs K and others have quit shopping at macy's because after the 2008-9 purge, Macy's dropped the quality of the goods they carried.
Honest Injun

Sun, 11/15/2015 - 22:12 | 6798035 lasvegaspersona
lasvegaspersona's picture

is there still talk of 'gorilla'companies?

I did not fall for the tech bubble, though I regretted it on the way up, but I did follow the hype. I recall that if you found a gorilla company then you should not ask about the price...just invest, because gorilla companies would eat up smaller companies (even though gorillas are not carniverous) and these were a sure thing....do we still have those?

Do people still go mad in herds and slowly come to their senses one by one?

Sun, 11/15/2015 - 22:31 | 6798098 McCormick No. 9
McCormick No. 9's picture

No, people come to their senses suddenly and in herds, like lemmings running off a cliff.

Sun, 11/15/2015 - 21:21 | 6797890 LetThemEatRand
LetThemEatRand's picture

The greatest thing or the worst thing (depending on your point of view) about unicorn meat, is that it is always taken by anal suppository.  It's in the horn.TM

Sun, 11/15/2015 - 21:30 | 6797917 Yen Cross
Yen Cross's picture

lol.  Long after the African white RINO,not Chris Cristie there will be Unicorn horns for everyone.

 Just like those cocksuckers that blew up Paris and their [72 virgins].

Sun, 11/15/2015 - 21:58 | 6798003 Keyser
Keyser's picture

I find that mixing a little rat meat in with the unicorn meat adds to the flavor amd more closely reflects reality... 

Mon, 11/16/2015 - 00:50 | 6798425 LetThemEatRand
LetThemEatRand's picture

When unicorns eat rats, they become gerbils (keeping with the anal suppository theme).

Mon, 11/16/2015 - 07:15 | 6798855 Pliskin
Pliskin's picture

I heard Richard Gere took that whole 'theme' a step too far!

Sun, 11/15/2015 - 21:27 | 6797911 km4
km4's picture

Talking Heads - "Once In A Lifetime" same as it ever was ;-) 

 

Sun, 11/15/2015 - 21:59 | 6798004 Keyser
Keyser's picture

More like Burning Down the House...

https://www.youtube.com/watch?v=u06DpcFXc4U

Sun, 11/15/2015 - 21:35 | 6797937 Dragon HAwk
Dragon HAwk's picture

Freight is down when they should be hauling holiday goods... that's all you need to know

Sun, 11/15/2015 - 23:18 | 6798221 uhland62
uhland62's picture

That's my man! Freight/freeway trucking is the real indicator. Just stand there or look around you when you take a drive to visit Auntie Deb.

Stocks that are too far out from 14 times dividend need to be handled with kid gloves.

Sun, 11/15/2015 - 21:47 | 6797971 nmewn
nmewn's picture

Well Farcebook had a board meeting and announced that upon moar "human disasters" (whatever the fuck that is...that's not what I ordered!...a flat tire!...I got fired!) you will now be able to tell everyone you're ok, so that should help...lol.

The light at the end of the tunnel is a train...but I'm ok here in my safe place!

Yeah, you now know you are monumentally screwed.

Sun, 11/15/2015 - 22:17 | 6798047 lasvegaspersona
lasvegaspersona's picture

As a sign of my old age and distance from 'normal social interaction' I still do not understand why anyone would have a facebook page. Clearly there can be problems with sharing information with strangers. The government is interested in your data even if you 'have nothing to hide'.

There are other ways to share stuff you want your family and friends to know.

There are better less biased sources of information.

...so why...?

Mon, 11/16/2015 - 03:59 | 6798685 kareninca
kareninca's picture

I hate to break this to you, but Facebook keeps an "account" of your information, even if you don't sign onto Facebook.  No, I haven't signed on, nor would I, but that for aesthetic and ethical reasons, not in order to have any sort of privacy. Since they (in their role as an arm of the police state) can get most info they want anyway.

Mon, 11/16/2015 - 07:09 | 6798841 Pliskin
Pliskin's picture

You make a good point, and I agree completely. You can check out more of my views on the subject at www.facebook.com/pliskin

Mon, 11/16/2015 - 07:12 | 6798848 Pliskin
Pliskin's picture

N.B. To any 'tards' who actually click that link, it's not me...It was a joke! 

1)  I've never been on Facebook in my life

and

2)  I currently reside in a country where Facebook is inaccessible.

 

Sun, 11/15/2015 - 22:28 | 6798076 buzzsaw99
buzzsaw99's picture

FB investors are willing to pay more for revenue than anyone. They are paying damn near 20X revenue. not 20X profit, 20X frikken revenue!!

MSFT 4.6X

AMZN 3.0X

GOOG 6.9X

Sun, 11/15/2015 - 22:46 | 6798131 nosam
nosam's picture

The USG will spend as much as necessary to keep Facebook going. It is one of their best tool for international espionage.

Sun, 11/15/2015 - 23:25 | 6798231 uhland62
uhland62's picture

They probably do it already, but it doesn't show up in the dividends, does it? Didn't I read about people travelling 'incognito' who set up a fake FB page to prove at borders they exist by that name?  It was unforgettable reading because the traveller's manual also included to pay attention to 'pocket litter'. Belgium has decided, FB isn't supposed to track you if you're not a 'customer'; well that's the theory. 

Sun, 11/15/2015 - 22:57 | 6798164 Yen Cross
Yen Cross's picture

 How many times have those stocks been split Buzz?

 Where's Qualcomm? The market is saturated.

 Microshit @ 4.6x. lol

 All the designers are moving to O/S{ open source}not i-shit.  Linux has a tested software library, that blows Apple and Microslop away.

  I can't wait to see all these " basement" babies outsourced by their own inventions.

Sun, 11/15/2015 - 22:46 | 6798134 zeroaccountability
zeroaccountability's picture

Short MSFT, AMZN, GOOG, and FB.

Buy Silver.

Now, if you'll excuse me, I have half a can of left-over Elk Assholes to heat up for dinner.

Sun, 11/15/2015 - 23:26 | 6798235 uhland62
uhland62's picture

That's rather a late  dinner in your neck of the woods. Here it's currently 13:56.

Sun, 11/15/2015 - 23:33 | 6798251 Yen Cross
Yen Cross's picture

  I love Oceania. ;-)

Mon, 11/16/2015 - 00:19 | 6798373 holdbuysell
holdbuysell's picture

"The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation."

In other words, the return of some capital instead of return on capital returns.

 

Mon, 11/16/2015 - 07:35 | 6798882 lucky and good
lucky and good's picture

It has become abundantly clear that when it comes to the "economic chips" the powers to be have no intention of letting them fall where they may. However, several factors determine just how much influence can be applied to the the final outcome of current economic policies. Continuing with the metaphor of "falling chips." Things like the size of the chips, the rate or speed at which they fall, and the number of chips in the air may make them uncontrollable.

My point is we could find ourselves up to our neck in chips in a blink of an eye, and in the middle of an economic tsunami all bets are off as to how successful efforts to stem a catastrophe might be. The financial overlords may be losing control and this means during the final stage of the global shakedown events will be chaotic and become very wild. More below on how violent the crash might be. http://brucewilds.blogspot.com/2015/08/the-final-shakedown-will-be-uncontrolled.html

Do NOT follow this link or you will be banned from the site!