Investing thought experiment, but do the math:

Take the financials of these businesses, but depreciate R&D over 10 years and look at what happens to GAAP earnings. Do the same math over different depreciation periods.

Datadog (DDOG)
OKTA
Pagerduty (PD)
Crowdstrike (CRWD)
2/ What's the useful life of Shopify's software? Expense R&D costs immediately? Seriously?

What's the useful life of Docusign's software? One year or less? Are you joking?

Over what period should Stripe's software be depreciated? Expense it immediately? That's coconuts!
3/ Charlie Munger: "Everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn’t make it anything you really know.” jamesclear.com/great-speeches…
4/ If only there was another way to value a business. Wait! The value of a business is the present value of free cash flow.

"Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.” Bezos 25iq.com/2014/04/26/a-d…
5/ "I'd go to shareholder meetings and someone would ask about earnings. I’d say, ‘You're in the wrong meeting.’ If you start generating earnings it means you’ve stopped growing and the government is now participating in what should be your growth metric.” 25iq.com/2014/11/02/a-d…

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More from @trengriffin

6 Dec
1/ A service like OnlyFans is potentially "nonrival" since we could all view content without anyone being excluded. But OnlyFans is offered on a membership basis which makes content "excludable."

OnlyFans is a SubStack-style platform for adult content. bloomberg.com/news/articles/…
2/ Membership platforms like OnlyFans solve one business model problem, but create another one. There must be something valuable people can't get elsewhere for free. There's tons of free ad supported porn available. So like any effective SubStack, the porn must be personalized.
3/ Supply is the killer of value. If potential customers can get x for free elsewhere, selling X is hard.

Ps, How do promoters solve this problem? As Charlie Munger says they bribe the purchasing agent! By paying an enormous sales commission (AKA bribe) to a trusted "advisor"!
Read 5 tweets
6 Dec
What shipped first: Microsoft's: (1) spreadsheet or (2) word processor? In what month and year did they ship? What were they called on the ship date? Do you know the pre-shipment code names?
Microsoft Multiplan was Microsoft's first commercially released application software. It was shipped by the End-User Systems Group in August of 1982. The original code-name was “EP” for Electronic Paper. Multiplan was written by Douglas Klunder, who reported to Charles Simonyi.
Word was Microsoft's 2nd application. September of 1983

Bill Gates: "The user interface was identical to Multiplan."

Richard Brodie: "We thought 'Microsoft Multi-Tool Word' sounded brain-damaged."

Simonyi: "The name ''Word" was from Jeff Raikes."
vintagecomputing.com/index.php/arch…
Read 6 tweets
6 Dec
1/ Are there topics you would like to see discussed in a tweetstorm? With links that lead you to new reading material? What do you know about the DCFs that Warren Buffett does in his head? We discussed many topics in this week’s podcast. DCF was just one. infiniteloopspodcast.com/tren-griffin-e…
2/ "When we invest, we defer current consumption in order to consume more (after taking inflation into account) in the future. Most investment opportunities don’t guarantee you’ll have more in the future than you do today, but that’s the motivating driver."forbes.com/sites/kevinhar…
3/ "The value of a stock is based on the same principle. The problem is that there is no coupon or maturity. ..The intellectually correct way to value stocks is similar to bonds, and that is a discounted cash flow (DCF) model." kellogg.northwestern.edu/faculty/korajc… Image
Read 7 tweets
28 Nov
1/ A source of leverage for some people is the company they join as an employee if they are granted stock options.

Imagine you joined Microsoft in December of 1979. Year-end sales and were $2.5 million and you were the 26th employee. The company sells BASIC, COBOL and FORTRAN.
2/ Bill Gates:​ "When IBM first visited us [in the summer 1980] it was actually a small group from IBM's Boca Raton laboratory. They had spare capacity and the Board had asked them to do something sort of quickly, in a lean sort of way... an experiment." threadreaderapp.com/thread/1193294…
3/ Many people who write about the IBM PC's birth have negative information on what actually happened. They rely on sources like unauthorized biographies. By December 1980 the number of companies having 40 developers who could write software for PCs was exactly one: Microsoft.
Read 8 tweets
28 Nov
"Amazon added 427,300 employees between January and October, pushing its work force to more than 1.2 million people globally, up more than 50 percent from a year ago. Its number of workers now approaches the entire population of Dallas." nytimes.com/2020/11/27/tec…
2/ Michael Mauboussin writing about "real options" in 1999:

"Amazon started by selling books. So there was a DCF value for the book business plus out-of-the-money contingent options on other offerings." capatcolumbia.com/Articles/FoFin…
3/ "As the book business proved successful, contingent options on music and video went from out- of-the-money to in-the-money... As time passed Amazon’s real options portfolio has become more valuable. For example, the foray into the auction business [was once] unimaginable...."
Read 8 tweets
25 Nov
1/ Do you know what this is?
2/ Another clue:
3/ One more clue:
Read 4 tweets

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