Some Early-Morning Thoughts

I’m in a stretch of awaking at 3 am to 4 am many mornings. I am an early riser, but, when I have a lot going on at work, I become an even more pronounced “early to bed, early to rise” person. (We are very busy, as many companies are approaching us for funding.)

Arising early is actually helpful on Saturdays, when I try to fish on occasion. It’s actually very peaceful to drink coffee in the dark, while I check email, the news, and social media. It’s very calming to have time to sit and think, since the gym doesn’t open until 5.30 am.

So, here are some assorted thoughts this morning:

Companies in this field are going through a pricing correction. It is getting pretty ugly. IMO, much of this is the difference between gross and net revenues, with the former including TAC (traffic acq. costs).

In other words, many of these companies were able to post huge growth in top line revenue. But, many of those dollars went right back out the door to pay for acquisition costs, making for a much smaller “net” revenue number. Once the public and private markets understood this, valuations plummeted.

When fast-growing ad. tech. businesses were garnering high valuation multiples in spite of their low gross margins, we at Kepha talked about when the music would stop. We weren’t wishing ill will; we just had a gut feeling that the markets would wisen up eventually.

We are very glad that our ad. tech. company, OwnerIQ, has a very high gross margin business. I wonder what FanDuel’s gross margins are, net of prize payouts and customer acquisition costs.

All this to say that high gross margin businesses are always better businesses. As I’ve written before, having low gross margins means that you really need scale to achieve profitability. And that really increases a business model’s capital intensity.

That is all fine in a rising-ride market when capital is cheap. That all breaks down when the stock market becomes jittery or corrects. We again are in an uncertain period in the stock market. Hence, all the articles about Unicorns that may become Unicorpses.

I find it interesting that the Patriots are 2-0, and Tom Brady is playing at an unbelievable level. I think it is interesting that the Ravens and the Colts are each 0-2. They ostensibly started the whole “FrameGate-DeflateGate” affair by asserting to each other and the NFL that the Patriots were monkeying with football air pressure.

He strikes me as one of the most personally insecure people I’ve observed from afar. I think most dangerous is his ability to ignore data that doesn’t subscribe to his POV.

I don’t agree with many of her policies. But, IMO, she is by far the most qualified candidate running out there.

I feel very grateful to have a strong support network. Every other week, I meet a group of male friends in a discussion group. We are going out for a group dinner in a few weeks. They’re great guys.


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