No. of Recommendations: 59
Oh! This time it’s different???

Yes, this time IS different! As Tinker said, “Things change all the time.” But it’s not the this time that’s different; it’s what we are investing in that’s different. As I tried to explain, what we are investing in never existed before.

We are investing in a new model of enterprise: year after year very high growth, very high gross margin companies, whose revenue is almost all recurring, and largely locked in, and whose dollar-based net retention rates are greater than one, meaning that last years customers buy more this year than last year instead of having an attrition rate. I’ve never seen companies like this before. Have you?

Of course a company like this is worth higher EV/S and higher PE than the old model of fairly low revenue growth, with little or no visibility into what revenue that you could absolutely count on for next year!

Of course companies without security of revenue had to show a profit (PE) before we'd invest in them. Of course we pay more for a company where revenue is recurring. Of course rapidly growing revenue which has very high gross margins is worth more per dollar of present revenue (EV/S) than slower growing, non-countable on, and lower gross margin, revenue.

And don’t bother telling me they are not making any profit. Any company with 75%, 85% or 95% gross margins can make a profit whenever they decide to! All they need to do is slow down spending on grabbing every new customer they can grab while the grabbing is good. Personally, I’d rather they keep grabbing all those customers now, from whom revenue will keep growing for the indefinite future.

So YES, this is a different set of facts we are dealing with. That’s how I see it anyway.

Saul
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