With so many old ideas and rum, we might conclude that Son is more fascinated by the wrapping paper than the gift.
Although they are billed as transformational businesses, no issues are solved, no neglected assets are used and, in truth, there is hardly any technology involved either. And the novelty that exists is doing it in a form where ideas are very easily copied.
The latest player in the Son market, Klarna, strangely follows this model. The Swedish company allows BNPL (buy now-pay later) transactions (at zero interest, as long as punters pay on time), generating income from the retailer and interest on late payers. Extraordinarily, the support of the Vision Fund resulted in a valuation of $ 46 billion for Klarna. But it’s a service offering that can be easily cloned, and dozens do, including ClearPay and PayPal. Plus, people hate low cost credit (for others, not for themselves), so regulators are looming.
It has now emerged that Credit Suisse, once one of SoftBank’s largest lenders, has stopped lending to Son and has reviewed its relationship with Softbank, after regretting its exposure to Greensill and Katerra.
So far, Softbank has come out largely unscathed – but problems are looming. Biparty support for antitrust regulation is united by the suspicion that windfall profits for one of Son’s “unicorns” may mean extortion from other companies.
But the biggest fear of all for his followers is inflation.
“This is one of the biggest valuation bubbles of all time,” says fund manager Ralph Jainz. “Bubble Tech’s valuations are built on DCF (Discounted Cash Flow) models, and increasing levels of inflation are toxic to them.” This means that the promised transformation becomes more distant – reaching infinity.
“It’s pure math,” Jainz explains. “Rising interest rates reduce the long-term value of high-growth companies when you project twenty or thirty years.” Two Nobel Prize winners, Robert Schiller and James Tobin, each point out how extremely inflated the market is; Tobin’s Q ratio, a measure of overvalued stocks with an average average of 1, hits 3 for the first time. Schiller’s PE ratio, another measure of moss, is higher than it was on Black Tuesday in 1929.
“You won’t see who’s wearing underpants until the tide comes out,” Jainz says. Mr. Son remains unrepentant, but the choice may not be his. Son was faced with a grid of unimpressed Softbank shareholders on Wednesday, who have seen the stock price drop 21% since March. With rate hikes on the horizon, the time to reckon for Mr. Singularity is looming.