Aswath Damodaran: Broken Business Models In Tech Companies Weren’t Apparent During Good Times

Johnny HopkinsAswath DamodaranLeave a Comment

In his recent interview on CNBC, Aswath Damodaran discussed some of the broken business models in tech companies which were not apparent during the good times. In order to fix those models, companies can optimize software such as an online business simulation game.

Here’s an excerpt from the interview:

Damodaran: I think the big difference between 2021 and now is tech now is the biggest segment of the market by far. And within tech you have a huge variation in companies.

I mean just last week I broke down tech companies by age, by corporate age. It’s amazing how much of a difference there is between the youngest tech companies and the oldest tech companies.

In fact, I think some of the oldest tech companies are among the best value investments in the market. The youngest tech markets which have negative earnings, negative cash flows, very dependent external capital, are getting slaughtered in this market.

I think, you take like the Netflix and Ubers of the world, they’re in the middle ground, but both have significant problems with their business models. In the good times we don’t notice. Netflix is always what I call the ‘hamster-wheel model, which is create more content, you sign up on users, you get a higher market price, and you go out and create even more content.

The question even in the good times was, how do you get off this hamster-wheel? We’re discovering the weakness links in the business models at some of the mid level companies, and I think we’re going to find out which of these companies are capable of fixing the limits in their business models and which ones are going to get shaken out.

You can watch the entire discussion here:

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