You have convinced me of just how wonderful the Cloudflare business is, but I am truly curious how you think about valuation. I think we would agree that 1x revenue is too cheap and 1,000,000x revenue is too expensive. So somewhere between those two goalposts is a fair value.
As a backwards looking thought experiment, I calculated the IRR one would have generated if they had bought Google at IPO and paid 100x TTM revenue. The result is just under 9% (assuming my data and math is correct) which isn't terrible but isn't exceptional either. Of course we know that Google has become the best or one of the best businesses the world has even seen and was growing revenue above 100% at IPO.
Something I really admire about you is how infrequently you talk about valuation. Ironically, I would be just as happy with you not wanting to answer.
Brent, I do like how you backed into the IRR, and used Google in your example. There is some great inversion in your thinking.. 🤙 Your logic shines light on todays High flying stocks, maybe RIVN $130 price... Howard Marks reminds us that PRICE.....MATTERS!
Thanks for the kind words Nick. I'm not sure what to conclude, a 9% CAGR isn't bad, perhaps it should have traded at 100x at IPO. I suspect that some "overvalued" stocks today will prove to be, while other "overvalued" stocks will go on to produce exceptional returns. Liberty had an interesting take on RIVN in today's edition.
I find valuation boring to write about, and I never pretend to be making recommendations to invest or not invest in anything. I try to just focus on what I find interesting in the actual businesses.
People can make their own choice on that, because everyone has different time horizons, confidence levels, hurdle rates, position sizing, etc.
I feel that if you know the business but find it too expensive, it's easy to wait around and be ready if there's ever an entry point at a price you find attractive, so nothing's wasted.
LIBERTY- "Robots and digital twins and games and machine learning accelerators and data-center-scale computing and cybersecurity and self-driving cars and computational biology and quantum computing and metaverse-building-tools and trillion-parameter AI models! Yes plz"
You have convinced me of just how wonderful the Cloudflare business is, but I am truly curious how you think about valuation. I think we would agree that 1x revenue is too cheap and 1,000,000x revenue is too expensive. So somewhere between those two goalposts is a fair value.
As a backwards looking thought experiment, I calculated the IRR one would have generated if they had bought Google at IPO and paid 100x TTM revenue. The result is just under 9% (assuming my data and math is correct) which isn't terrible but isn't exceptional either. Of course we know that Google has become the best or one of the best businesses the world has even seen and was growing revenue above 100% at IPO.
Something I really admire about you is how infrequently you talk about valuation. Ironically, I would be just as happy with you not wanting to answer.
Brent, I do like how you backed into the IRR, and used Google in your example. There is some great inversion in your thinking.. 🤙 Your logic shines light on todays High flying stocks, maybe RIVN $130 price... Howard Marks reminds us that PRICE.....MATTERS!
Thanks for the kind words Nick. I'm not sure what to conclude, a 9% CAGR isn't bad, perhaps it should have traded at 100x at IPO. I suspect that some "overvalued" stocks today will prove to be, while other "overvalued" stocks will go on to produce exceptional returns. Liberty had an interesting take on RIVN in today's edition.
Thx for the perspective Brent. Cloudflare certainly doesn't pass the "margin of safety" test as an investment
I find valuation boring to write about, and I never pretend to be making recommendations to invest or not invest in anything. I try to just focus on what I find interesting in the actual businesses.
People can make their own choice on that, because everyone has different time horizons, confidence levels, hurdle rates, position sizing, etc.
I feel that if you know the business but find it too expensive, it's easy to wait around and be ready if there's ever an entry point at a price you find attractive, so nothing's wasted.
Cheers!
Tbond yields at 7% should do the trick.
That's the response I thought you'd give and respect you for it. Keep up the good work.
LIBERTY- "Robots and digital twins and games and machine learning accelerators and data-center-scale computing and cybersecurity and self-driving cars and computational biology and quantum computing and metaverse-building-tools and trillion-parameter AI models! Yes plz"
ME- I KNOW, RIGHT!! 😝🤘🤖🤙💥👩🎤👨🎤🚀
Just a boring note: gross margin is not the same as operating margin
Not sure I follow. Did I accidentally say it was?