Investors Find Ways to Indirectly Profit from Valuable Startups

http://www.nytimes.com/2015/08/10/technology/investors-find-ways-to-indirectly-profit-from-valuable-start-ups.html?hpw&rref=technology&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

by petethomas • 11 years ago

44 26 11 years ago

nytimes.com

jhonovich• 11 years ago

"Pier 88 put money into HomeAway, a publicly traded Internet company that competes with Airbnb, but has a market capitalization of just $2.95 billion."

Just? It's still trading at ~7x sales and ~70x earnings with revenue growth less than 30% year over year. How much more should this company be worth?

Matt_Mickiewicz• 11 years ago

At least it has earnings, AirBnB is probably in the red.

gburt• 11 years ago

Indeed. To me, this article seemed like a PR piece designed to increase HomeAway's stock price.

bradleyjg• 11 years ago

I guess it isn't an illegal pump and dump scheme if you get your buddy at the New York Times to pimp your latest stock pick rather than sending out a whole bunch of spam emails?

toufka• 11 years ago

Doesn't that just mean that AirBNB's numbers would be even worse?

rjtavares• 11 years ago

I was fully expecting synthetic-collateralized-yc-batch-convertible-debt-obligation. But no, it's just some unproven investment thesis presented as fact.

rebelidealist• 11 years ago

Yelp at $1.9B is also relatively cheap compare to private market valuations. It dominates the sector and have 142 million monthly active users.

boomzilla• 11 years ago

The big problem with Yelp is how you make money off the reviews? Advertisement doesn't work well because people will just go to the best reviewed shops. Checkin discount, Groupon style, is too small a market, and a failed biz model anyway. So right now Yelp makes money by strong arm (yes, strong arm) restaurants into paying to remove bad reviews and/or rerank the reviews favorably.

Essentially, Yelp provides a lot of utility to the users, but can't make money off them. It provides leads for the shops, but it doesn't control the demand side. Its review data is scraped by Google, so the value of its data is diluted. I think Yelp is a failed business model by itself. The only reason I am not shorting it right now is I think someone will acquire the company soon. In the hands of a big company, it could act as a huge loss leader for other value added services.

thesimpsons1022• 11 years ago

can you elaborate on "Advertisement doesn't work well because people will just go to the best reviewed shops". Why can't yelp just runs non-restaurant related ads, ie for samsung or something. As long as they have traffic, those ads will have views.

nosuchthing2• 11 years ago

Confirmed with several restaurant owners, Yelp cold calls businesses often to extort "subscription" charges and if the business refuses the search algorithm drops their ranking.

I've also noticed cases where legit looking reviewers have complained about their positive reviews being removed.

dazbradbury• 11 years ago

What an awful article. If two stocks were publicly traded, both competing in the same market and one had a market cap 10x the other, it doesn't mean the cheaper one is underpriced.

That's akin to saying penny stocks are the sensible place to put your money, they are cheaper.

Airbnb may have 10x users, revenue, potential - it may have 100x, or it may have a 10th, this isn't discussed at all.

This isn't indirectly profiting from valuable startups, it's backing the weaker company (all things being equal, and assuming those investing in private companies realise they can also invest in public ones), saying the publicly traded companies are underpriced, or that the whole market is high growth and no one horse will win.

In other words, standard investment behaviour, not news.

larrys• 11 years ago

Yeah but a great way publicity wise for the people featured that invested in the "underpriced" company to lift the stock price.

WDCDev• 11 years ago

Investing in HomeAway based on Airbnb's value assumes BOTH are fairly valued. HomeAway's p/e is over 400 right now on a $3 billion market cap. AirBnB is valued at $51 billion.

dougmccune• 11 years ago

"With such a disparity between public and private multiples, it’s a reasonable fundamental approach to believe that in this environment, the public company valuation will come up or the company will be acquired."

How is it that the other scenario (that the private valuation is illogical, unsustainable, and patently absurd) isn't the more obvious answer?

davidu2• 11 years ago

Both points of view can be accurate / true, and probably are.

davidu2• 11 years ago

Both points of view can be accurate / true, and probably are.

rancur• 11 years ago

How is it that the other scenario (that the private valuation is illogical, unsustainable, and patently absurd) isn't the more obvious answer?

this was never the question. the question was how to make money off this absurdity.

Like Greece. Country was and is a mess, and should have stayed separate. But some people might be able to get out ahead by clamoring for bailouts under the guise of 'we didn't know' later, so they invest.

Like student loans. Government was backing them while someone else gets the interest, so obviously someone else grants them.

Like FM&FM. Government was granting preferred lending status to subsidize housing, so bad loans were issued.

nzealand• 11 years ago

Why is there no Arbnb or Uber derivative?

liampronan• 11 years ago

I've had similar thoughts for private companies, but don't know enough about the possible underlying financial product structure. Can anyone shed some light onto the possibility of something like this?

phantom_oracle• 11 years ago

So considering the consensus of opinion among the comments that "just because the private company is 10x higher value than its public-traded counterpart, where those public counterparts are still trading at 20+x earnings", Pier88 decides to buy into the public firm and has returned ~9% in 6 months, but...

with a similar size of capital and knowing that the market will correct the private firms valuation over time, a shrewder investor would wait for the Ubers and AirBnBs to go public and short their shares or buy bear options, thereby giving returns far in excess of what ~9% will give.

I bet that for every Tiger Global, T. Rowe Price and other "don't miss out on this unicorn" fund, there is a Carl Icahn laughing until it hurts, because he is loading up on bear positions for the over-valued private company and will cash in like many did when FB flopped on IPO.

chatmasta• 11 years ago

The real profit is in moving your startups to your portfolio company's cloud hosting platform.

e.g. Snapchat on google app engine. Ironically google is the only one profiting off snapchat userbase...

Investors Find Ways to Indirectly Profit from Valuable Startups

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