After spending time in San Francisco, we traveled to Los Angeles to host another dinner. We gathered in Culina at the Four Seasons Beverly Hills. Away from VC circles, a more bullish tone emerged. 

As is customary at our dinners, each attendee was requested to bring a chart to discuss with the group. Please find a summary of the charts and discussion below. 

Chart 1: Long Denial Uber’s focus on achieving profitability on a free cash flow basis is a sign that valuation perspectives are shifting. 

Chart 2: Long Knives “We are in the final stages of the bear market. The most speculative stocks (including crypto) will bottom first.”

Chart 3: Short Degenerates Retail traders are now bracing for further turmoil and turning to inverse funds to bet against stocks.

Chart 4: Short Volcker “It was not Volcker who tamed the 1970s inflation, but rather the supply side response. The Fed has failed to learn the proper lessons. What the world needs is capex, not demand control.”

Chart 5: Short Hawks “Money markets have probably got ahead of themselves. It’s difficult to see the Fed sustaining its 50 basis point rate hikes beyond the end of July.”

Chart 6: Long Chips “No matter what anyone says, America is simply the best place to invest.”

Chart 7: Long Schadenfreude “The fact that bitcoin is still triple its pre-pandemic level is quite astonishing. This is despite the carnage in digital assets.”

Chart 8: Short Douchebags “Be with those who help your being. Don't sit with indifferent people, whose breath comes cold out of their mouths. Not these visible forms, your work is deeper.”

Long Denial 

Source: Bloomberg

The average price-to-sales (PS) multiple for the most expensive quintile of technology stocks has dropped by 65 percent, from 17x to 6x. This is still higher than the post-dotcom period’s average (4.5x). “Where will we bottom?” the speaker wonders aloud. This is all he can think about. 

It’s worth noting that we’ve witnessed a significant dispersion in the form of a growth to value rotation. The most expensive quintile of tech stocks has dramatically underperformed (down 47 percent) the least expensive stocks (down 8 percent) since November.

Tech valuations at the November peak were not nearly as extreme as in March 2000. However, investment styles go out of favor for long periods of time. Some growth stocks remain popular among investors, despite the recent sell-off, with fund managers still in denial.

Uber CEO Dara Khosrowshahi’s declaration that he will now focus on achieving profitability on a free cash flow basis, according to one participant, is a sign that valuation perspectives are shifting. 

“The worst-case scenario would be Microsoft from 2000,” he said. “Earnings nearly tripled over the following decade, but the stock was still down 50 percent from its dotcom peak in 2012 due to an 80 percent drop in the price-to-earnings multiple.”

More technology startups crossed $1 billion in valuation in 2021 than in the previous 5 years combined. With the bear market in full swing, the speaker said that he is seeing extraordinary opportunity in the secondaries market. Founders and employees are looking to offload shares to crystalize some gains. 

Long Knives

Source: Bloomberg

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