The Investing Con Game

I came across this article.  Very interesting reading. Some might think it controversial but it is in line with my observations..... Aivars Lode

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 The Investing Con Game by Steve Holzman and David Tedesco 

Call us old-fashioned, but in the current investing climate we can’t help but pine for the days when earnings, cash flow, and dividend growth were what determined an attractive investment. Back then, the only public companies without significant earnings that one would consider for investment were those with a potential homerun product, like a bio-technology breakthrough. 

Today we live in a world where potential revenue growth is the only thing needed for many newer companies to attract investment and boost their share price. The companies that are being valued at the highest relative valuation are those that are following a growth-at-all-cost strategy. The only metric that matters in the short term is revenue growth. Near-term profitability is irrelevant and long-term profitability is simply assumed. The overwhelming majority of these companies are selling products or services at a structural loss, which is being financed by venture capital, private equity (PE), and public equity investors. Clearly, this phenomenon couldn’t occur without major Wall Street investors, investment banks, lenders and research boutiques first accepting, and then supporting, this change of focus. 

A Creeping Level of Absurdity 

Investors’ current willingness to fund large and seemingly endless losses in an attempt to drive revenue growth is absolutely staggering. Uber is but one of many examples of this new investment hypothesis. Despite Uber’s insatiable need for cash to fund growth, which has only resulted in deep operating losses to date, investors caught up in the “stars of the moment” are apparently investing in Uber and many other companies on a purely conceptual basis. Investors appear to be completely ignoring both valuation and the lack of any realistic path to profitability. Because of the amazing success of Amazon and a handful of other companies, investors seem to have concluded that revenue growth is the only metric that matters. Business models built solely to generate revenue growth, with little potential for earnings and future dividends, can result in a perverse set of incentives. Products are sold and business agreements are entered into solely to generate revenue under terms not focused on profits. Additionally, share prices can be boosted through questionable related party transactions, a practice that we understand to be endemic. 

Food-Delivery Companies Serve Restaurants Better Tech

I am not sure how you make the numbers work when a lot of these guys work on 2 deliveries an hour as best practice!! ....Aivars Lode

DoorDash, Grubhub, others say seamless ordering and customer data make up for thin margins 

Delivery companies are sharing more data and fusing technology more seamlessly with restaurants to counter the growing sense that sending food to customers can be more trouble than it is worth. 

DoorDash Inc., valued at $13 billion after a May funding round of $600 million, is hiring more staff to build new services for restaurants and working with tech provider Olo to place orders directly in restaurant’s cooking queues. 

“Merchants were asking for more. We are giving them more,” said Christopher Payne, DoorDash’s chief operating officer, in a recent interview.

The business of ferrying food from restaurants to diners is booming. But some restaurants say fees often make meals they send out for delivery unprofitable. Some, from McDonald’s Corp. to independent restaurant owners, have negotiated to lower fees and share marketing expenses. And the New York City Council and Senate Minority Leader Chuck Schumer (D., N.Y.) are scrutinizing fees charged by Grubhub Inc. and other delivery services to restaurants and customers, with lawmakers considering increased oversight of the sector. 

“This model is leading to their slow death,” said Mark Gjonaj, chairman of the City Council’s Committee on Small Business, referring to restaurants, on Monday. 

Now, delivery companies are responding with new capabilities that they say make delivery more worthwhile for restaurants. 

Wall Street finds blockchain hard to tame after early euphoria

As predicted the last line is the most telling. This is a journey not a short term solution and the cost needs to be in line with the value created.... Aivars Lode

NEW YORK (Reuters) - Two years ago Nasdaq Inc and Citigroup Inc announced a new blockchain system they said would make payments of private securities transactions more efficient. Nasdaq Chief Executive Adena Friedman called it “a milestone in the global financial sector.”

But the companies did not move forward with the project, a person familiar with it said, because while it worked in testing, the cost to fully adopt it outweighed the benefits. 

Blockchain, the person added, “is a shiny mirage” and its wide-scale adoption may still “take a while.” 

In a joint statement, the companies said the pilot was successful and they were “happy to partner” on other initiatives. Both companies are also working on other projects. 

Companies, including banks, large retailers and technology vendors, are investing billions of dollars to find uses for blockchain, a digital ledger used by cryptocurrencies like bitcoin. Just last month, Facebook Inc revealed plans for a virtual currency and a blockchain-based payment system. 

But a review of 33 projects involving large companies announced over the past four years and interviews with more than a dozen executives involved with them show the technology has yet to deliver on its promise. 

At least a dozen of these projects, which involve major banks, exchanges and technology firms, have not gone beyond the testing phase, the review shows. Those that have made it past that stage are yet to see extensive usage.

Regulatory hurdles have often slowed down implementation, some executives said. Scrutiny is likely to only increase after Facebook’s plans drew global backlash from regulators and politicians. (For a sample of these projects, click on) 

The euphoria that surrounded the early days of Wall Street’s interest in blockchain is giving way to pragmatism, as companies realize that it will likely take years before it takes off in a substantial way. 

“This is a transformation of the market. It isn’t a big bang,” said Hyder Jaffrey, head of strategic investments for UBS AG’s investment bank. 

It could take three-to-seven years before major projects have significant impact, he said. 

One UBS-backed project, a digital cash system for financial transactions called Utility Settlement Coin, is expected to be commercialized next year after more than five years of work, said Rhomaios Ram, head of a separate entity created for the project. 

But Ram said that for the system to be transformational, it will require other market processes to move to blockchain-based systems as well. 

“There is a recognition now that it is a journey, rather than something with a short time frame,” Ram said.

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