Very Long Article Warning of Valuations

I like to see articles like this warning of how expensive our stocks are. Though the article is mostly talking about other companies in the specific examples.

This is becoming a common comparison “the cloud stocks” to “the dot coms”

People are conveniently pulling from one of the greatest downturns/bubbles of our generation.

There are so, so many differences now and then. I’m sure some stocks will certainly under perform, but we don’t have to own them. We want to be very selective and own only the best.

Also if revenues slow we can sell.

Finally, before there was very little (if any) subscription revenues and many more hardware biz back then.

Good to read this stuff though and be selective. Only owning our best ideas, not using margin, and having 3-5 yrs of expenses. That is all key.

Sorry for the OTness mixed in. Family time now.


One thing about dot com stocks other than being valued at 10 year’s plus perfect straight line performance is almost all of them were paid by advertising. Google TTD Amazon and the web have matured the ad model and Roku is following in those footsteps. However, other than these few every company we try to invest in gets paid in cash, lots of cash for product creating enormous and not in dispute at that efficiencies and capabilities.

But you know, a good headline. Creates another wall of worry. I’m concerned when there is no concern, unless the concern legitimately discussed real business fundamentals.



You know what I’d rather see? “The Death of Equities” like Time had on their front cover in 1981. Or Bill Gross going around saying “this is the new normal” like in 2009. Those are headlines that could actually be a sign you can make money. Not an environment of 100% pops on IPO day and money falling in your lap like someone forgot to reset the slot machine with articles saying things are overpriced.


From the OP’s link and way down in the article:

While a decade ago, the terms SAAS and Cloud may have frustrated Larry Ellison, there is no denying they are now the norm in software. When investors used to get excited about a SAAS company, they typically would be describing a hosted multi-tenant subscription-billed piece of software that was replacing a ‘legacy’ on-premise perpetual license solution in the same target market (i.e. ERP, HCM, CRM, etc.). Today, the terms SAAS and Cloud essentially describe the business models of every single public software company. Therefore, understanding the market’s current infatuation with software companies requires taking a closer look at how software development has changed.

The Rise of Microservices

The legacy on-premise era is often associated with a monolithic architecture approach to software development. A monolithic application consists of a single unified code base written in one language that puts all its functionality into a single process. It typically uses one database, and scales by replicating the entire monolith across multiple servers. This contrasts with a microservices approach….

“The microservice architectural style is an approach to developing a single application as a suite of small services, each running in its own process and communicating with lightweight mechanisms, often an HTTP resource API. These services are built around business capabilities and independently deployable by fully automated deployment machinery. There is a bare minimum of centralized management of these services, which may be written in different programming languages and use different data storage technologies.” - Martin Fowler

The limitations of the monolithic model are pretty clear on the surface - most notably, that any small change or update requires deploying an entirely new version of the application. This architecture was suited to the era of perpetual license software as companies could invest the time and expense to release new software editions every couple of years. It does however pose challenges in the cloud/on-demand environment, which is characterized by continuous integration and rapid deployment.

Here is a table depicting some of the key differences between the two architectures:

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