1-min summary of “The Profitless Prosperity Sector Will Collapse…” by Kuppy

This is a 1-minute summary of The Profitless Prosperity Sector Will Collapse… by Kuppy of Adventures in Capitalism published on 3 January 2019.

• It is fears of fraud in the sector that end bubbles
• Examples include Enron (Energy trading), WorldCom and Qwest (Fiber build out), Ivan Kreuger and Samuel Insull (Holding companies), Lehman Brothers (Underwriting structured products)
• Running unprofitable businesses in favour of growth is justified, for instance, for large total addressable markets (TAM), but there are many unprofitable businesses that don’t have a good justification
• For example, WeWork is expected to lose as much as its revenue despite being a 9-year old company and operating at scale due to subsidising. Can it be a sign of uncompetitiveness?
• Even Lyft and Uber, who are leaders and successful disruptors in their industry, are in strong competition against each other due to offering a commodity service. Thus they require shareholders to subsidise users. Valuations would be much lower if investors were sensible cash flow multiples
• Tesla is the largest fraud that will explode the current Profitless Prosperity Sector bubble consisting of unprofitable companies without a competitive moat requiring further equity injections to execute their strategy