Chickens coming home to roost
The signs point to rough economic times ahead. There’s a major war that’s affecting energy and food supplies. Inflation is rising and eating away at what little money the working class and poor have. The middle classes, buried in debt, will start missing payments with echos of 2008.
My big prediction is that this round will wipe out most of the big valuation but unprofitable tech companies.
Starting with Uber and Lyft, which are loosing massive amounts of money:
Uber has lost an astounding sum since its founding in 2009, including more than $30 billion in the five-odd years since the company’s finances became public. Together with earlier losses and a similar strategy at rival Lyft, this has amounted to an enormous, investor-fueled subsidy of America’s ride-hailing habit.
Those days are over, Uber CEO Dara Khosrowshahi told employees in a memo last week. “The average employee at Uber is barely over 30, which means you’ve spent your career in a long and unprecedented bull run,” he wrote. “This next period will be different, and it will require a different approach. … We have to make sure our unit economics work before we go big.”
Sounds like a WeWork moment to me.
Netflix and Peloton only turn profits when people are under house arrest.
The Buy Now Pay Later bubble is also ready to burst:
Klarna racked up $700 million in losses last year, and 65 percent of it was from credit defaults. Affirm lost almost the same over the past 12 months, while its marketing expenses tripled to $427 million. Any hope of profitability depends on overextended consumers somehow making their payments and continuing to mash the BUY button. What’s more likely is that the precarious finances of the 20-something generation are going off the precipice soon, and there’s a big risk of collateral damage.
None of this is sustainable.
The advice I’ve been giving everyone who works in the tech industry is to completely ignore compensation packages that are heavy on stock. Even strong companies are going to see big corrections in stock valuations. Also, work for “boring” yet profitable companies. Now is not the time to work for a hip but unprofitable company like Klarna or Netflix.
Just as a finished this draft, I saw that DHH posted nearly the same thing. He has even more examples and is more concerned about the business side of things. I’m more worried about my friends in the tech industry that are navigating the job market right now.