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In case it's not. My thought is basically that early in the cycle, especially with fonts of cheap money, Wall Street has rewarded sales growth. As the cheap money starts getting more expensive, earnings and balance sheets are going to mean more. A lot of companies want to extend said sales growth too long/fast, and they make expensive late cycle acquisitions, loading themselves up on debt and paying peak prices for targets...just as sales growth is about to slow for both and leverage is going to start getting more expensive.
We've also got some big shifts to consider. Leases now are on the balance sheet in most cases. ASC606 goes further down the IFRS insanity by having us capitalize commission expenses both for the life of a contract and for the life of a customer. Understanding the different approaches taken by companies will be important. Not to mention there's still wondering about how much ground has been covered in setting pricing...is everything a BESP? Are true-ups occurring?
One service company I was working with was distributing a piece of hardware that would allow for their service to be delivered to areas it otherwise couldn't be. I'll make up numbers/industry to protect the paying guilty and make math easy. This is how to grow sales:
The hardware manufacturing cost was $600.
Hardware installation would be provided by another beneficiary of the hardware with information on location. Hardware goes in homes.
The service was $10 a month.
The service still had separate costs of about $4 a month.
Internal target was for service to be provided for 24 months.
Historically service averaged approximately 4 months.
Even if everything goes to optimistic plan in a no marketing cost environment, you're looking at spending $600 in hardware + $96 in service COGS to receive $240 in revenue.
In my old school way of thinking....that looks just stupid. Like a guaranteed loss. But this is where I'm losing out to the wisdom of my conventional peers. I'm just not as enlightened anymore.
So, what if we say the hardware is really a fixed asset that the customer will give back when they don't use it anymore...and it's just wonderful electronics that will last for 10 years?
Ahhh....now we have $240 in revenue less $96 in service COGS and $120 in depreciation COGS. Now we're making money!
But we know we can't do it that way. The box is worth a portion of the revenue of $240, right....though I do sell the service separately. This seems problematic, except we can use BESP and call it a different service. Now we have 2 BESP, so let's look at % of costs....$120/$96....perhaps I should use that in allocating cost as both have the same estimated discount. So 55.5% of revenue for the box and 44.4% to the service. For easy math, let's call it 60/40.
So my total estimated....scratch that, lets call it good...contract for 2 years is $240. The third party distributor is going to take possession from us and bear the service risk, we're ready to go.
End of month 1 revenue:
Box Revenue - $144 (60% of $240)
Service Revenue - $4 (40% of $240 divided by 24 month contract * 1 month service provided.)
Depreciation Box COGS ($5)
Service COGS ($4)
Now that looks like a company with terrific tech margins....right?!?
Let's just make another couple of things clear:
Unit recovery from unknown homes is set at 100%
Cost to refurbish units is set at $0
Cost to redeploy units is set to $0
Will someone go bury that report that shows our average customer is ending service in 7 months?
Sweet. I think we're done here folks. C level...go wow your investors and get your loan to grow. Next?
Oh...I guess we need a couple disclosure...but don't worry, nobody reads that crap. Let's hurry and not make an issue...this Big 4 team we flew in has to get back to Asia....
You’re giving me a headache Artillery!
My biz is very simple! I provide IT consulting services. I get a contract for 10$ per hour of services, I hire contractors for 6$ per hour - I profit 4$ per hour worked.
Sure, it’s all talk, and meeting ain’t quite cancelled, it’s on hold, and/but, it can obviously be rescheduled. (Maybe it was Melania who floated this! LOL - actually, I bet it was someone who cleared it w/Moron or someone that Moron told to float this - probably the latter).
The bigger point is that Moron wants to drastically change everything in one fell swoop. Ain’t gonna happen and we’ll all hafta see how this drags out over time. Just like Nafta. Moron cancelled Nafta, and renamed it with 2% changes 13 month later and declared “total and complete victory!”
This is an investing thread and I’m talking about Moron BECAUSE HE’S BIGLY AFFECTING MY $$$
Tony, if Trump is a moron - and he may very well be, although he seems to be doing a good job - what does that make Hillary Clinton, who had every advantage she could have - and still found a way to lose to him?
And as for Trump affecting your $$$ --- only YOU affect your $$$ --- do your homework and find other things to invest in to take advantage of the new situation.
...what does that make Hillary Clinton, who ... still found a way to lose to him?
The factors ('skills' 'qualities' etc) related to winning or losing an election...
have almost NOTHING to do with the skills of governing once or if elected.
ftr... Hilary would have lost to McCain too.
She was an awful choice and and even worse candidate (both times)...
but she would probably have done a wonderful job once in office.
Certainly a better job (for all but the top 10% at least) than what we have now.
Last edited by MrRational; 10-27-2018 at 02:55 PM..
you know when people start patting themselves on the back for getting 4% "guaranteed income" we are close to a short term bottom..
In a correction, folks latch onto any story, no matter how bonkers, to find an explanation for the downturn. Fact is corrections can (and do) happen for no good reason. The media will tell you why stocks are down and people then just go with that narrative....stocks are volatile...deal with it.....
No need to rely on the media.
Stocks are down because they were overvalued. Is nobody aware of the tried and true Warren Buffett approach?
Pick an industry. Learn it inside out. Understand the inherent and potential value driven by advances in products, services and/or technologies produced by the companies you pick.
What has been the justification for increased FANG Investments in the past 2 years? To me not nearly enough to warrant this level of Investment. Netflix is hobbling along but I don't see anything on the horizon warranting anything but a hold.
Amazon has issues that need to be ironed out but they are on an upward trajectory. But again in the short term? Nothing to over-invest in. Google? They still make most of their money in Search Engine Marketing and YouTube ads. I bet most of you aren't keeping this in mind at all. Google Fiber has not moved an inch. Facebook? They have a lot of headwinds to address but where no one is looking is the fact that the average user is aging there is too much of a domestic focus and not enough on solidifying the Non-chinese international user base engagement.
The market correction is no surprise to me. After all I have worked with ALL of these companies in multiple capacities directly in my career. The problem is American investors are investing in things they have NO CLUE about, the government and institutional investors also conveniently ignore the vulnerabilities and drawbacks. All they see is the potential upside. And the European central banks foolishly follow suit.
Stocks are down because they were overvalued. Is nobody aware of the tried and true Warren Buffett approach?
Pick an industry. Learn it inside out. Understand the inherent and potential value driven by advances in products, services and/or technologies produced by the companies you pick.
What has been the justification for increased FANG Investments in the past 2 years? To me not nearly enough to warrant this level of Investment. Netflix is hobbling along but I don't see anything on the horizon warranting anything but a hold.
Amazon has issues that need to be ironed out but they are on an upward trajectory. But again in the short term? Nothing to over-invest in. Google? They still make most of their money in Search Engine Marketing and YouTube ads. I bet most of you aren't keeping this in mind at all. Google Fiber has not moved an inch. Facebook? They have a lot of headwinds to address but where no one is looking is the fact that the average user is aging there is too much of a domestic focus and not enough on solidifying the Non-chinese international user base engagement.
The market correction is no surprise to me. After all I have worked with ALL of these companies in multiple capacities directly in my career. The problem is American investors are investing in things they have NO CLUE about, the government and institutional investors also conveniently ignore the vulnerabilities and drawbacks. All they see is the potential upside. And the European central banks foolishly follow suit.
$.10,
Call it a market correction if you like - I call it a tariff caused correction. Tariffs and correction happened at the same time - NOT a coincidence. Trade War is now escalating, and market is REALLY $mad.
Isn't the longest Bull Market in history actually over now?
I see people keep saying we're in it but how so after a year of mostly no gains?
Listen to this and maybe it will lighten your mood
And Usually I am more negative than positive
I just think in some ways the market is one big shell game
Call it a market correction if you like - I call it a tariff caused correction. Tariffs and correction happened at the same time - NOT a coincidence. Trade War is now escalating, and market is REALLY $mad.
Since the losses are heaviest in FANG stocks I am wondering if it is more surrounding his Immigration stance. Tariffs would primarily only affect Amazon. Apple, MSFT, Facebook, Google, Netflix will be affected by the H1-B circus. They have already had to move a couple of hundred if not more H1-Bs to Vancouver. No word yet on the exact number of how many families have been affected in these companies specifically. The main big media focus has been on low income nameless migrant families. After all not many will shed a tear over high wage tech workers with the same issues.
Since the losses are heaviest in FANG stocks I am wondering if it is more surrounding his Immigration stance. Tariffs would primarily only affect Amazon. Apple, MSFT, Facebook, Google, Netflix will be affected by the H1-B circus. They have already had to move a couple of hundred if not more H1-Bs to Vancouver. No word yet on the exact number of how many families have been affected in these companies specifically. The main big media focus has been on low income nameless migrant families. After all not many will shed a tear over high wage tech workers with the same issues.
I freely admit that I’m 100% singularly focused on tech, mainly because I’ve been in tech all of my life - I wanna invest in companies that I have at least a clue about them and their products. Agreed that tariffs mainly effect techs, but they effect all companies - ask Ford, Harley etc. Not sure how much H1-B issue effects stock prices of FANG etc. So what if they hafta move people to Vancouver etc.
(My son’s an engineer at Intel, so, I know something kinda first-hand about H1-Bers - Intel etc. can’t get enuff).
I freely admit that I’m 100% singularly focused on tech, mainly because I’ve been in tech all of my life - I wanna invest in companies that I have at least a clue about them and their products. Agreed that tariffs mainly effect techs, but they effect all companies - ask Ford, Harley etc. Not sure how much H1-B issue effects stock prices of FANG etc. So what if they hafta move people to Vancouver etc.
(My son’s an engineer at Intel, so, I know something kinda first-hand about H1-Bers - Intel etc. can’t get enuff).
I think this issue would more related to the H-1B cap.
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