Uber is worth $68 billion. Or, Uber is worth $52 billion. The $16 billion difference shows has vastly different the valuations of unicorns (private companies worth over $1 billion) can be, based on the eye of the beholder.
Actually, three difference values have been put on Uber recently. The first is from The Wall Street Journal, which uses a proprietary database to update the valuation of all unicorns once a month. It puts Uber’s value at $68 billion. Another is from Zirra, a company that uses artificial intelligence to follow the private company valuation world. It puts Uber’s value at $52 billion. The third is from private company analysis company PrivCo. It also puts Uber’s value at $68 billion.
Zirra recently compared its numbers to The Wall Street Journal’s:
Zirra valued the top 20 global unicorns and compared them with Wall Street Journal’s live list of private tech companies. The result was a median gap of 26.5%. It is quite possible to conclude that tech unicorns are overvalued, probably as they need to endlessly raise money and give new preferred stocks to convince new investors to jump on board, thus artificially pumping up valuation. Another reason for the overvalued market is VCs who value companies using pricing methods. These methods use relative valuation, pricing companies as a result of similar public and private companies in the market.
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The spread of value numbers across such a large range illustrates two points about the trouble outsiders have in making value estimates. First is that unicorns are as valuable as their investors say. Uber has raised $12.6 billion, with each round of financing setting a new value negotiated by the investors in that round. Uber’s total capital raised compares to an average of $4 billion by the next nine unicorns, based on their values. Uber’s most recent round was in June 2016. Some of the top 10 unicorns last raised money in late 2014 or early 2015. There is a huge spread in the time during which each company raised capital and the value investors put on the companies at those points in time.
The second difficulty with the valuation of unicorns is that with each progressive quarter, revenue, profits and balance sheets are updated. Unicorns that miss forecast numbers face valuation hits, and if they raise money after poor figures are posted, they face “down rounds” in which investors cut the valuation from the last time a unicorn raised capital. Some earlier investors are forced to write down the value of their investments. The future of these damaged unicorns can turn from optimistic to bleak.
Evan Danckwerth, senior financial analyst at PrivCo, recently told 24/7 Wall St.:
[E]arlier this year, some major unicorns, including Snapchat, suffered from speculation of overvaluation. During that time, Snapchat’s valuation fell from $16 billion to around $13.7 billion. However, many of those companies have either returned to previous values or have since increased in value. In May, Snapchat raised funds based on a $20 billion value. This change “means that there’s something there … [investors] are really looking at true revenue.”
Who is right? It depends on who is looking.
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