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Wednesday, December 18, 2013

Pets.com redux

Anyone else scenting a familiar odor? That rancid aroma of greed, fraud, cigarettes, and overpriced cologne? It smells like 1999 to me:
Pinterest is a lovely website. It provides something the internet has never had before (virtual window shopping and muffin JPEG fetishism) in a snappy, tidy package. It's very popular, particularly within the inscrutable Midwestern Mystery Zone, which baffles most tech companies, small and large alike. It's aspirational picture-collecting at its most refined, and certainly could end up being the way people plan future purchases. Maybe. Someday. There's no way to be sure.

And then there's Snapchat, the pubescent pic-sharing app du jour, enough of a phenomenon to tilt teens away from Facebook, and a cultural spike unto itself. It's fun! It's a very fun, very smart, very simple toy—and there's nothing wrong with that. The world needs things that are amusing and little else, lest we all be crushed beneath cloud services and spreadsheets. Fun is fine, and it's certainly proven popular for Snapchat's founders.

But these are both massive maybes bridging chasms of financial uncertainty. Maybe Pinterest will drive sales, and be able to keep a cut for itself. Maybe Snapchat will be able to turn its huge demographic reach among vulnerable young minds into revenue, and hold on to its trend status. Maybe. But that's almost $8 billion (estimated) dollars pinned on a maybe, the sort of breathless, thoughtless speculation bubble dreams are made of. It's $8 billion in maybe snapped against two companies that haven't even tried to make money.
In the immortal words of Public Enemy's Chuck D: "Here we go again...."

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37 Comments:

Anonymous Freestater December 18, 2013 1:05 PM  

I wouldn't mind shorting insanely high P/E ratio companies with slim margins....................cough cough amazon. Bring on the Pets .com 2.0!

Blogger buzzardist December 18, 2013 1:14 PM  

Eventually, a company has to make a profit. Investment capital and IPOs only go so far. Most of these companies, if they are smart, are probably hoping to be bought out by a Microsoft or Google before they reach the end of their capital ropes. If they don't get bought out, they will be Pets.com. If they do, well, then it's up to Google or Microsoft to find ways to capitalize on the data they learn about people from what people willingly share on these sites.

Shoot, even Twitter hasn't got any kind of profit, and Facebook's profits are minuscule. All they have is a lot of users, and as soon as users start to migrate to other services (Hello, MySpace!), these companies can't even lure investors with big user numbers.

Of course, the NSA has been paying some of these companies to build backdoors for them into their systems, so there is always that steady source of revenue...provided they keep enough users around that the government remains interested.

Blogger Nate December 18, 2013 1:25 PM  

Pintrest can make money in very similar ways to google.

Anonymous Josh December 18, 2013 1:29 PM  

OT: Vox, you have to read the Phil Robertson story in GQ.

This is how we rebuild the culture. This is how we win.

Whatever you think of Phil’s beliefs, it’s hard not to gaze upon his cultivations and wonder if you’ve gotten life all wrong. This is life as summer camp. It’s gorgeous, in a way that alters you on an elemental level. I feel it when I breathe the air. I feel it when I survey the enormity of the space around me. I shouldn’t be sitting around the house and bitching because the new iOS 7 touchscreen icons don’t have any fucking drop shadow. I should be out here, dammit! Killing things and growing things and bringing dead things home to cook! There is a life out in this wilderness that I am too chickenshit to lead.

Anonymous Josh December 18, 2013 1:30 PM  

Pinterest is awesome because it refutes the lies of feminism.

Anonymous stats79 December 18, 2013 1:36 PM  

"Facebook's profits are minuscule"

$6.87 billion in sales and $1.04 billion income. It ain't Apple but it's significant.

OpenID newrebeluniv December 18, 2013 1:38 PM  

IPO!!!! TAKE MY MONEY NOW!!!

--Hale

Anonymous Zion's Paladin December 18, 2013 1:42 PM  

OT: Those of you who were hoping they'd approve a man vs. woman fight in MMA just got your wish.

Anonymous Will Best December 18, 2013 2:02 PM  

I do think there are exceptional differences between 1999 and now though. Now people know how to monetize websites which is something people didn't have a clue in the 90s. Doesn't mean they will always be successful, but there are successful models.

I wouldn't mind shorting insanely high P/E ratio companies with slim margins....................cough cough amazon

Shorting Amazon is a great way to lose all your money in a hurry. Shorting anything right now is an exercise in futility. Don't fight the Fed.

Blogger Chiva December 18, 2013 2:21 PM  

Maybe one of these newer internet companies can reuse the sock puppet from Pets.com.

Funny enough most people still remember that damn sock puppet, but not the company associated with it.

Anonymous Hunsdon December 18, 2013 2:32 PM  

"Hey, what's the worst that could happen?"

Anonymous RP-in-TX December 18, 2013 2:35 PM  

The problem with shorting anything right now, as Martin Armstrong has pointed out, is capital flows. Instability and wealth grabs in Europe means lots of wealth is flowing into U.S. equities as a safe haven of sorts.

Anonymous RedJack December 18, 2013 2:42 PM  

Pintrest is an odd thing. My bride, my sisters, my mother, and just about every woman I know uses it. It costs me money (my bride has to many ideas for home made or modified furniture), but not that much. In short, a great hobby site.

But why would I pay for it?

Blogger Nate December 18, 2013 2:44 PM  

"But why would I pay for it?"

You wouldn't.

But Hobbylobby would.

Anonymous Freestater December 18, 2013 2:50 PM  

"Shorting Amazon is a great way to lose all your money in a hurry. Shorting anything right now is an exercise in futility. Don't fight the Fed."


Bro, Amazons P/E ratio right now is 1300.............yes that is right, it trades at 1,300 times earnings! If they can keep this up then I guess Unicorns are real and I should marry a feminist because nothing makes sense after that P/E ratio.

Anonymous Josh December 18, 2013 2:51 PM  

And a thousand other companies that sell cute stuff to females.

Why else do you think mommy blogging is big business?

Anonymous Giraffe December 18, 2013 2:55 PM  

My bride, my sisters, my mother, and just about every woman I know uses it. It costs me money (my bride has to many ideas for home made or modified furniture), but not that much. In short, a great hobby site.

Yes. So there is a revenue stream. Now to tap into it.

Facebook may or may not be a bad investment, but it would have been a good trade.

Blogger Eric December 18, 2013 2:56 PM  

Bro, Amazons P/E ratio right now is 1300.............yes that is right, it trades at 1,300 times earnings! If they can keep this up then I guess Unicorns are real and I should marry a feminist because nothing makes sense after that P/E ratio.

The P/E ratio is so large because profit is so small. But profit is small because they're building out a bunch of infrastructure to support same-day delivery.

Anonymous YIH December 18, 2013 3:04 PM  

Anyone else scenting a familiar odor?
Yes, one that smells like dead, rotting fish in fact:
#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.

#9 Twitter is a seven-year-old company that has never made a profit. It actually lost 64.6 million dollars last quarter. But according to the financial markets it is currently worth about 22 billion dollars.

#10 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.
And considering that the Fecesbook looks to be about to hit the fan over ads it appears tech is again partying like it's 1999.
And we all know how that turned out, right?

Blogger LibertyPortraits December 18, 2013 3:04 PM  

I'm honestly surprised Vox doesn't have a pintrest page.

Anonymous automatthew December 18, 2013 3:20 PM  

Swords, shoes, tiny umbrellas, and the tears of his enemies?

Anonymous YIH December 18, 2013 3:24 PM  

Chiva:
Maybe one of these newer internet companies can reuse the sock puppet from Pets.com.
Someone did.
That reminds me of my favorite Sock Puppet story:
As Pets.com's recognition began to grow, it attracted the attention of the creator of Triumph, the Insult Comic Dog. Representatives from Robert Smigel sent letters, including a cease and desist demand, to Pets.com claiming that the puppet was based on Triumph. Pets.com responded by suing Smigel in California.[7]
About 4 months later Conan announced on the show that due to the pets.com chapter 7 the suit was dismissed - comedy gold.

Anonymous Will Best December 18, 2013 3:34 PM  

The P/E ratio is so large because profit is so small. But profit is small because they're building out a bunch of infrastructure to support same-day delivery.

Well yes and no, if you build a $50 million distribution center you don't get to subtract $50 million from this year's profits. Amazon has impressive sales growth 25-33% annually, and there is the belief that they could increase margins.

The real concern I see with Amazon is that its revenue per employee is plummeting which is cutting into their ability to turn a profit. Then again Amazon is on the forefront of warehouse automation

Blogger RobertT December 18, 2013 3:41 PM  

Both ideas are nuts in my mind. People have to wake up and smell the coffee. We've already had all the life changing web services we're likely to see - Facebook and Twitter. Anything else is a cheap copy trying the emulate Henry Fords success by bringing our a jazzed up 1932 Chrysler. It's too late. The big impact has already happened. Even if those companies go under and they are replaced with a plethora of replacements, the impact can never be duplicated.

Anonymous dh December 18, 2013 3:57 PM  

Well yes and no, if you build a $50 million distribution center you don't get to subtract $50 million from this year's profits. Amazon has impressive sales growth 25-33% annually, and there is the belief that they could increase margins.

Two ways to increase margins - reduce costs, and increate price. At some point, costs bottom out. The bottom is reached. Future cost reductions are gained only by larger and larger investments of capital and time.

At that point all that's left is prices. A huge, huge, huge part of Amazon.com is pricing. Who knows what will happen if it's not longer very cheap.

Anonymous Josh December 18, 2013 4:30 PM  

Amazon's going to start charging sales tax in a year or too, which is going hurt their price advantage.

Anonymous Will Best December 18, 2013 4:41 PM  

We've already had all the life changing web services we're likely to see - Facebook and Twitter

When I played Super Mario Bros 3 for the very first time, I made the following statement "There is no way video game graphics could possibly get any better than this". Of course I was 6 at the time.

Anonymous GunShowTrash December 18, 2013 4:52 PM  

You know why nobody cares whether these businesses (Pinterest, Facebook, LinkedIn) are going concerns that make a profit?

Because these businesses are mining assets. Your personal likes, dislikes, wish-lists, and daily activities are the assets. And these are for-sale.

And you volunteered every one of them. Filled out a Rolodex card for Pintrest/Facebook/LinkedIn et al and gave it to them.

Congrats: The Stasi has been privatized.

Further, no-one cares about making a profit 'cause management has already collected its check. I think it's a bit like the modern film industry: No-one cares if people like the movie or not, so as long as every director, actor, assistant, transport captain, and go-fer gets paid.

Your own domain and homepage is one thing. That's info you choose to make public. You choose what will be exploited.

But agreeing to let someone else track you is another matter. You have no choice.

Anonymous Gx1080 December 18, 2013 5:08 PM  

While what GunShowTrash says is true, though the NSA is nothing compared to being able to sell a huge operation of data-mining to a marketing department, I actually amazed on how many on the tech sector take shit wages and shit working conditions on an unsafe company just because "the company is cool".

Bunch of morons.

Anonymous Freestater December 18, 2013 5:17 PM  

Well looks like Uncle Ben just gave the markets another shot of heroin-----DOW up over 250 points today.

Blogger Whiskey December 18, 2013 7:00 PM  

Pinterest and Snapchat are plays on consumer data. Want to know which teens sext? Which housewives love Bieber? Or Knitting? Or Knitting life size Justin Biebers? They're your go-to source.

That's why VC money loves them. People give up data about themselves and its worth Gold! Jerry! Gold!

Blogger JCclimber December 18, 2013 7:02 PM  

Nothing like 1,600 new internet millionaires from the Twitter IPO injected into the local housing market here in the SF Bay Area.....

I don't wish any entrepreneur ill, however....these hipster liberals really make my bile rise. I do have to get them credit for finding a way to tap into Uncle Sugar's money stream.

Blogger James Dixon December 18, 2013 7:25 PM  

> Well looks like Uncle Ben just gave the markets another shot of heroin-----DOW up over 250 points today.

I still trying to figure that one out. They finally announce the beginning of the long dreaded tapering, and the markets go up?

Anonymous dh December 18, 2013 10:27 PM  

JD--

It's easy. The Fed plants stories in the media about how much tapering they are going to do. Then they ratchet up speculation levels. They also plant a few stories about how it's never going to end.

Then when they announce the actual program, and sugarcoat it, it sounds WAY better than the base case, and bingo bammo you get more pump and less dump.

It's all about animal spirits.

Blogger James Dixon December 19, 2013 6:17 AM  

Sounds reasonable, dh. Thanks.

Anonymous Stilicho December 19, 2013 8:05 AM  

James, the Fed tapered $10 billion monthly, leaving a nice QE of $75 billion monthly on the table. They also said that QE will continue indefinitely. Thus, they doubly assuaged the junkies' fears of being cut off by their dealer: they get about 10% less heroin per month (so the taper isn't so bad after all), but they get it guaranteed for the foreseeable future (and the party rocks on).

Blogger James Dixon December 20, 2013 5:46 AM  

Understood, Stilicho.

The good news from my perspective is that if they only taper by $10B every quarter, they'll still have tapered $80B in 2 years. I'm not sure investors are doing the math. :)

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