When Revenue Growth Collapses

When we are on the road, we like to tell the story of our imaginary bottled water company. The first year we manufacture one million bottles of water at a cost of $1. To attract customers, we sell them for 90 cents per bottle. In our second, year we make two million bottles for $1 per bottle. Again, we sell them for 90 cents per bottle.

In the revenue growth world of the last five years, this make-believe company would be a huge success story. It would tout 100% growth in sales the second year and ask investors to ignore the doubling of the loss from $100,000 to $200,000 for the sake of growth. Lastly, it would remind everyone that there are over seven billion people in the world who drink water and that is a total addressable market. Imagine the opportunity in front of them.

At this pace, in five years, Wall Street could help us go public at a $5 billion market capitalization. We’d offer 10% of the company at $20 per share and force a six-month lock up on existing shareholders. The stock would soar to $30 per share the first day and regularly get mentioned and followed on the financial news channels.

We wish our farcical water company was just an outlandish caricature of reality. There are gigantic multibillion-dollar market cap companies selling things at a loss all around us. Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) sell rides in an automobile at a loss. Amazon (NASDAQ:AMZN) sold $13 billion more in the recent quarter and spent $14 billion more doing it than the year before. It isn’t happy losing that much, so the company announced on Oct. 29 it is dropping the $14.99 per month for Prime members to get groceries delivered to their door, so

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