Investors Find Ways to Indirectly Profit from Valuable Startups
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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?
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.
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.
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.
There may not be any traffic after they slap a giant Samsung ad on their site.
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.
I've also noticed cases where legit looking reviewers have complained about their positive reviews being removed.
Yelp doesn't change search rankings based on advertising. Source: I worked there, on search. It isn't true.
Looking at the search results for pizza sorted by the "best match" algorithm is mind boggling.
No, it doesn't. Setting aside the fact that you haven't actually done the analysis (so you couldn't find a correlation if you wanted to), it's an example of "people who want to believe in a conspiracy will find evidence for the conspiracy", with a nice helping of the post-hoc fallacy: Yelp has a huge army of sales people calling businesses every day. Rankings are also updated 24/7. It is inevitable that someone will be called, at random, right before they experience a ranking change.
A search as generic as "BBQ" or "pizza" is going to have a lot of variation, because people are constantly using those tokens in reviews, and they match across a huge number of businesses. I very sincerely doubt that there are 6-page differences in a business' ranking on a day-to-day basis, but if it does occur, it has nothing to do with their advertising status.
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.
e.g. Snapchat on google app engine. Ironically google is the only one profiting off snapchat userbase...