> Zombie businesses required to pay more for labour go bust.
They may survive for a long period of time in a perma low interest rate environment where debt has become cheap and stocks are highly inflated. Low interest rates, as well as enabling debt accumulation, also float the stock market, which provides shareholder dilution-based funding to businesses that otherwise would have far more severe problems.
Uber is an ongoing example of that. Previously they abused venture capitalist institutional money to get by, now they're living as a parasite on shareholders (who are hoping that something changes about the financials in their business, some day, some how).
Tech hasn't had a good 'ol brush fire clean out of garbage in a long time now.
Companies like Snowflake that are bleeding enormous sums of money, would collapse in a traditional 1990-1991 or 2001-2002 style recession. Snowflake is similar to any number of supposedly fast growing, huge loss-making companies like Exodus Communications from the dotcom era, that imploded when the music stopped (and so many of their business clients pulled back on spending). Snowflake's sales over the last four quarters: $851 million, their operating loss over that time: $775 million. They would instantly shatter if a real recession hit, the stock would drop by 95% rapidly. There is a lot of that garbage floating around the tech space these days, because we haven't had any good clearing fires in a long, long time.
I agree with the sentiment of lofty multiples, but what do you think happens to good product companies in that scenario? Sure their stock tumbles quite a bit but would it actually affect the business itself?
I heard the dot com bubble "garbage" was full of companies with no revenue, no customers, etc. I'm not sure many of the high growth tech companies burning $$s are cut from the same cloth though as they really do have products and customers in the present; it's just that the market expects an insane number of new services/customers in the near future...
For example, I'm guessing customers can't just cut off Snowflake easily (time wise and effort wise) so the cashflow would remain stable for a while. As long as they don't need to do a secondary offering (and have some cash), wouldn't they be able to weather a storm? Perhaps at the cost of some massive layoffs/refinancing but would still prevent an actual collapse?
They may survive for a long period of time in a perma low interest rate environment where debt has become cheap and stocks are highly inflated. Low interest rates, as well as enabling debt accumulation, also float the stock market, which provides shareholder dilution-based funding to businesses that otherwise would have far more severe problems.
Uber is an ongoing example of that. Previously they abused venture capitalist institutional money to get by, now they're living as a parasite on shareholders (who are hoping that something changes about the financials in their business, some day, some how).
Tech hasn't had a good 'ol brush fire clean out of garbage in a long time now.
Companies like Snowflake that are bleeding enormous sums of money, would collapse in a traditional 1990-1991 or 2001-2002 style recession. Snowflake is similar to any number of supposedly fast growing, huge loss-making companies like Exodus Communications from the dotcom era, that imploded when the music stopped (and so many of their business clients pulled back on spending). Snowflake's sales over the last four quarters: $851 million, their operating loss over that time: $775 million. They would instantly shatter if a real recession hit, the stock would drop by 95% rapidly. There is a lot of that garbage floating around the tech space these days, because we haven't had any good clearing fires in a long, long time.