"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?
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?
I was fully expecting synthetic-collateralized-yc-batch-convertible-debt-obligation. But no, it's just some unproven investment thesis presented as fact.
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.
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.
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.
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.
What is the reason for the huge fluctuation in the search results from one week to the next for something like BBQ? As in one day a restaurant shows up on the first page, and a few days later it was buried 6 pages deep? This observation correlated with the business owners refusing to pay Yelp's cold call sales team has nothing to do with the article you mention.
Looking at the search results for pizza sorted by the "best match" algorithm is mind boggling.
"This observation correlated with the business owners refusing to pay Yelp's cold call sales team has nothing to do with the article you mention."
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.
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.
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.
"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?
>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.
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?
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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[ 1.5 ms ] story [ 60.2 ms ] threadJust? 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?
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.
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.
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...