

Investors Find Ways to Indirectly Profit from Valuable Startups - petethomas
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

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jhonovich
"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?

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

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bradleyjg
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?

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dazbradbury
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.

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

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dougmccune
"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?

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rancur
>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.

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

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

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boomzilla
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.

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thesimpsons1022
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.

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timr
They actually just removed their so-called "brand advertising" (which is what
you're describing), because it was a small percentage of their revenue stream.
They claimed it wasn't worth pursuing because they make for a bad experience
on mobile, which is where their traffic growth is (their web traffic is
stagnating). It was definitely their highest-margin form of advertising, and
part of why the company's stock is being punished.

It isn't clear to me that Yelp, as it exists today, can ever be profitable --
they need to hire expensive sales people to cold-call businesses to sell ads
that run at CPM rates that are already incredibly high. Yet they can barely
break even. It's not going to be pretty as their ad rates are forced to become
market competitive.

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phantom_oracle
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.

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WDCDev
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.

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chatmasta
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...

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nzealand
Why is there no Arbnb or Uber derivative?

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liampronan
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?

