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I Took A Brutally Honest Look At 7 Overvalued Unicorns - Here's What I Noticed

‘Unicorn’ is a term given to startups which have achieved a valuation of more than $1 billion dollars. Before IPO, there are no real definitions on the true value of a company, thus, their valuation is determined by best guesses and estimations from their investors.

These companies are said to be worth billions…or are they?

Many experts suggest that highly-valued public companies often resist an IPO in order to preserve their inflated values. So are the following companies really worth the values listed?

1. Dropbox: $10 Billion

Image Credit: Digital Trends
Image Credit: Digital Trends

“The Dropbox valuation is irrational,” is CB Insights’ conclusion.

DropBox‘s direct competition, Box, is publicly trading at about 8 times its revenue of $216 million. At DropBox’s current valuation, it is at 25 times of its rumoured revenue of $400 million.

The research firm figures that Dropbox needs to at least double its revenue this year to about $800 million to justify its $10 billion valuation, something CB Insights figures is not an easy feat.

2. Pinterest: $11 Billion

Image Credit: Pinterest
Image Credit: Pinterest

“Advertising is still novel for Pinterest, which didn’t have any revenue model at all until 2014. For it to fulfil its promise as a global visual search engine—and a great place for brand advertising—it will need to transcend its initial American female audience and find a way to appeal to everyone.” (Source)

Silbermann, Pinterest CEO, says. “Pinterest is about matching you with the right ideas.”

This is hard to translate and resonate with different cultures, tastes, and practices across borders, and I think Pinterest needs to gain more traction internationally and generate more revenue for its valuation.

3. WeWork: $16.9 Billion

Image Credit: WeWork
Image Credit: WeWork

“WeWork is being valued as a tech company, not a real estate company, and that might not be a good thing. Boston Properties, the largest publicly-traded office real estate company, owns 47 million square feet of office space and has a market cap of $18B. The company has real, tangible, assets and is valued only slightly more than WeWork who’s renting a total of 80 offices.” (Source)

WeWork leases co-working space out to companies, traveling professionals and individuals who needs a temporary office, but the company does not own any property.

While the company is addressing a future trend and growing market successfully, it has almost the same valuation as Boston Properties. With a low barrier to entry and questionable business sustainability, is the company valuation really worth that much?

4. Snapchat: $18 Billion

Image Credit: The Verge
Image Credit: The Verge

“As far as Snapchat’s $18 billion valuation, the question is whether or not it can follow Facebook in developing a legitimate ad platform that provides strong return for its advertisers, the kind which has led to Facebook’s current $350 billion valuation with talk one day of a $1 trillion valuation, or will Snapchat follow the path of Twitter, which has struggled to find a true ad platform to generate value and has a current valuation of $10 billion while boasting over 313 million users.” (Source)

Facebook and Instagram have over 1.7 billion and 500 million users respectively. Can Snapchat reach similar numbers quickly? And, can it attracts advertising dollars away from these platform to justify the high valuation?

5. Palantir: $20 Billion

Image Credit: Fortune
Image Credit: Fortune

“Given the tremendous difficulty of turning data analysis into a software problem, my guess is that they are more akin to a consulting company and are overvalued. This is not to say that they won’t make money—they will likely make plenty—but that they won’t be the Silicon Valley darling that everyone wants them to be.” (Source)

Many say that for data analysis to be of huge value to customers, it needs help customers discover information that can transform the business.

This requires deep expertise and understanding of the business, and is not easily scalable across industries – can Palantir tackle that?

6. Airbnb: $30 Billion

Image Credit: SuiteLife
Image Credit: SuiteLife

“With a valuation of $30 billion, the private company is worth nearly $7 billion more than the next most valuable hospitality company, publicly traded Hilton Worldwide, which has a market cap of $23.33 billion. By comparison, Airbnb is almost worth more than Hilton and Hyatt ($6.87 billion) combined ($30.2 billion).” (Source)

Airbnb has more listings in more countries than any hotel chain. However, revenue generated from these short term listings tend to be much less than that from hotels.

Is an online company with no physical property really worth that much more than hotel chains with significant revenue? Perhaps, time will tell.

7. Uber: $68 Billion

Image Credit: Uber
Image Credit: Uber

“There’s very little incentive for the mega-capital companies, like Uber, to go public. You have access to large amounts of capital, and you know you are already overvalued, so why go public?,” said Jon Merriman, CEO of Merriman Capital.

Uber’s IPO has been delayed year after year. Top management executives can always liquidate their shares in the secondary market, so there is little motivation to pursue an IPO.

Is Uber really worth their valuation of $68 billion today? With their launch of self-driving cars, perhaps.

How Accurate Are The Valuations?

Investors will always value growth potential over current performance. That is the golden rule of investment. However, when the valuation gets exorbitant, it becomes a gamble.

Are these companies worth the gamble? Or, maybe these companies have something up their sleeves? We will watch this space with lots of anticipation.

What other companies should be on this list? Let us know!

Featured Image Credit: REUTERS, Mike Blake

 

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