Author Topic: GOOGL - Google  (Read 511257 times)

cameronfen

  • Hero Member
  • *****
  • Posts: 514
Re: GOOGL - Google
« Reply #2010 on: June 09, 2019, 12:57:00 PM »
There was a nice, thought provoking article in Barron’s the other day that points to a risk with GOOG (and FB and AMZN) that the market may be underestimating at the moment: 

https://www.barrons.com/articles/the-vc-bubble-is-putting-established-companies-at-risk-51559907001

The author’s argument is that a lot of VC money has been flowing into low quality startups/businesses that are really more like Ponzi schemes and that a big chunk of that funding has been spent on Google/Facebook ads and AWS.  So if/when this party ends, the author argues, GOOG/FB/AMZN investors may be among the many losers.

This naturally caught my attention (note: long), and so I spent a few hours looking up some numbers to see if I could get a rough sense of how big of a deal this might be.  Here are a few data points:

- According to crunchbase.com, the total dollar volume of VC funding in 2018 was around $340bn(!).  About 50% of that was raised by US-based companies and about 40% of it was early stage funding. 
- The word on the street (according to people like Chamath P. and others) is that about 40% of VC funding tends to be spent on Google/Facebook ads and AWS. 
- 2018 revenue for Google, Facebook, and AWS combined was around $220bn.

So taken together, it does seem like the revenue impact could be significant for these tech giants if VC funding were to dry up in a major way. 

Just something to consider.

I know that you (or someone else), has bee  making this point before.  These sources really put it into focus.  Thanks!


SHDL

  • Sr. Member
  • ****
  • Posts: 469
Re: GOOGL - Google
« Reply #2011 on: June 09, 2019, 01:16:00 PM »
Yes, I’d say the idea has been in the air for a while now.  There was a guy who put out a bear case for AWS along these lines like 4 years ago, IIRC.  He was way too early obviously.  My sense is that now we’re getting pretty close to a point where the thesis is actionable. 

obtuse_investor

  • Sr. Member
  • ****
  • Posts: 384
Re: GOOGL - Google
« Reply #2012 on: June 10, 2019, 05:07:31 PM »
Interesting twist by Google on the classic subscription model:

Quote
Google revealed more about its Stadia streaming games service (console quality games on any recent device that can run the Chrome browser). People had assumed that you'd pay a monthly subscription with lots of games bundled in that price, but instead the use is free with the games costing normal ($50+) prices. So, this isn't Netflix for games - you just don't have to buy any hardware other than the ($69) controller. Always interesting to look at the user curve for subscription models - a low price (eg $10/month) brings in more users, but does that make up for capping the revenue from your whales (the people happy to buy $50+ games every month)?

source: https://www.ben-evans.com/newsletter
Value Investor who manages his personal portfolio with a 25-45 year time horizon | @obtuse_investor

cameronfen

  • Hero Member
  • *****
  • Posts: 514
Re: GOOGL - Google
« Reply #2013 on: June 11, 2019, 01:47:24 PM »
Yes, I’d say the idea has been in the air for a while now.  There was a guy who put out a bear case for AWS along these lines like 4 years ago, IIRC.  He was way too early obviously.  My sense is that now we’re getting pretty close to a point where the thesis is actionable.

I'd say the 150 billion number is too big unless AWS gets like 100 billion from start ups (I dont really want to invest in amazon so didn't spend any time there).  Total smb internet marketing spend is only 60 billion.  Marketing epxenditures as a precentage of revenue is only 15% or so, social is just 4% of revenue.  So I have a hard time believing the 40% of incremental vc funding goes to google or fb ads.  That being said 30-40 billion dollars is nothing to sneeze at.  Not all of it will be lost, and again these companies are long term compounders and if this happens its probably a temporary imparement of profits, but definiely interesting. 

SHDL

  • Sr. Member
  • ****
  • Posts: 469
Re: GOOGL - Google
« Reply #2014 on: June 11, 2019, 02:39:18 PM »
Yes, I’d say the idea has been in the air for a while now.  There was a guy who put out a bear case for AWS along these lines like 4 years ago, IIRC.  He was way too early obviously.  My sense is that now we’re getting pretty close to a point where the thesis is actionable.

I'd say the 150 billion number is too big unless AWS gets like 100 billion from start ups (I dont really want to invest in amazon so didn't spend any time there).  Total smb internet marketing spend is only 60 billion.  Marketing epxenditures as a precentage of revenue is only 15% or so, social is just 4% of revenue.  So I have a hard time believing the 40% of incremental vc funding goes to google or fb ads.  That being said 30-40 billion dollars is nothing to sneeze at.  Not all of it will be lost, and again these companies are long term compounders and if this happens its probably a temporary imparement of profits, but definiely interesting.

Right, the key question here is whether Chamath’s 40% is something that applies only to, say, US-based early stage startups, or it is more universal.  If it’s the former, I think you’re right that the maximum revenue impact will be around $30bn between Google, Facebook, and AWS.  If it’s the latter, we have a much bigger problem…

The worst case scenario for current investors I think is one where VC funding dries up, the companies take a big hit to revenue, and their stock valuations go down as people start to realize that their growth over the last several years was not really a secular trend but rather a temporary VC-fueled boom that is not coming back anytime soon. 
« Last Edit: June 11, 2019, 03:51:49 PM by SHDL »

Castanza

  • Sr. Member
  • ****
  • Posts: 455
Re: GOOGL - Google
« Reply #2015 on: June 11, 2019, 06:49:23 PM »
Yes, I’d say the idea has been in the air for a while now.  There was a guy who put out a bear case for AWS along these lines like 4 years ago, IIRC.  He was way too early obviously.  My sense is that now we’re getting pretty close to a point where the thesis is actionable.

I'd say the 150 billion number is too big unless AWS gets like 100 billion from start ups (I dont really want to invest in amazon so didn't spend any time there).  Total smb internet marketing spend is only 60 billion.  Marketing epxenditures as a precentage of revenue is only 15% or so, social is just 4% of revenue.  So I have a hard time believing the 40% of incremental vc funding goes to google or fb ads.  That being said 30-40 billion dollars is nothing to sneeze at.  Not all of it will be lost, and again these companies are long term compounders and if this happens its probably a temporary imparement of profits, but definiely interesting.

Right, the key question here is whether Chamath’s 40% is something that applies only to, say, US-based early stage startups, or it is more universal.  If it’s the former, I think you’re right that the maximum revenue impact will be around $30bn between Google, Facebook, and AWS.  If it’s the latter, we have a much bigger problem…

The worst case scenario for current investors I think is one where VC funding dries up, the companies take a big hit to revenue, and their stock valuations go down as people start to realize that their growth over the last several years was not really a secular trend but rather a temporary VC-fueled boom that is not coming back anytime soon.

You also have to think about why VC cash might dry up? Certainly if we hit a recession it would affect the flow of VC capital. Not to mention I believe a recession will severely affect Amazon and their already over ambitious logistics projects. Couple this with the inevitable AWS market share loss as Microsoft pushed Azure (recently partnered with Oracle), and other companies gain some share. And then the cherry on top is the current governmental involvement. Personally I don't invest in Amazon. They seem to highly levered and priced beyond perfection. They have primarily grown in a bull market and competitions is always improving.

SHDL

  • Sr. Member
  • ****
  • Posts: 469
Re: GOOGL - Google
« Reply #2016 on: June 11, 2019, 07:41:41 PM »
You also have to think about why VC cash might dry up?

For sure.  I think there are a few possibilities.  One is that unicorns like Uber keep losing money and their stock prices keep going down, maybe a few of them go bankrupt, and that makes the big institutional investors who funded those companies through VCs less interested in doing more deals.  Another is that foreign (e.g., Chinese) investors start pulling out their money for political reasons.  Or, like you say, it could just be a recession that makes people feel like they “can’t afford” to put more money in VC. 

I’m actually not certain if so many VC funded businesses really are effectively Ponzi schemes, but if they are I’m sure this will all end like they always do: they end when they run out of people who will give them enough money to keep the scheme going.
« Last Edit: June 11, 2019, 07:45:39 PM by SHDL »

wisowis

  • Full Member
  • ***
  • Posts: 111
Re: GOOGL - Google
« Reply #2017 on: July 25, 2019, 03:04:47 PM »

LightWhale

  • Full Member
  • ***
  • Posts: 138
Re: GOOGL - Google
« Reply #2018 on: September 15, 2019, 10:42:28 PM »

Recent research by Bridgewater places specific numbers for the above discussion on VC spending:

*Tech start-ups spent $44bn on advertising and cloud computing from Facebook, Google and Amazon last year
* spending by private tech start-ups made up about 10 per cent of the revenue of tech giants in 2018
* The $44bn they spent on Amazon Web Service, Google and Facebook advertising compared with roughly $9bn spent in 2013, which accounted for about 6 per cent of the tech giants’ revenues.


From FT.

Castanza

  • Sr. Member
  • ****
  • Posts: 455
Re: GOOGL - Google
« Reply #2019 on: September 16, 2019, 05:38:27 AM »

Recent research by Bridgewater places specific numbers for the above discussion on VC spending:

*Tech start-ups spent $44bn on advertising and cloud computing from Facebook, Google and Amazon last year
* spending by private tech start-ups made up about 10 per cent of the revenue of tech giants in 2018
* The $44bn they spent on Amazon Web Service, Google and Facebook advertising compared with roughly $9bn spent in 2013, which accounted for about 6 per cent of the tech giants’ revenues.


From FT.

Interesting for sure. Thanks for sharing. Here is a link

https://www.ft.com/content/d0ece5b8-d5d3-11e9-8367-807ebd53ab77