When hypothetical valuations turn real
There is a ton of confusion these days about valuations of technology companies. It is all very reminiscent of the dot-com bubble of 2000, when upstarts commanded bigger valuations than the incumbents they were attacking. The valuations worked themselves out, of course: The worthy survived, and the unworthy didn’t.
A similar process is playing out now, with a bevy of transactions that are putting “real” valuations on private and public companies. Last week Expedia agreed to buy HomeAway, the vacation-home listings company. Expedia will pay almost $4 billion, which is a billion more than HomeAway was worth when I interviewed its CEO, Brian Sharples, in February. Sharples was preoccupied at the time with Airbnb, whose private-market valuation has since doubled to $20 billion.
The conventional wisdom is that Airbnb has a marvelous business, and I have no reason to doubt it. Here’s what I know for sure about HomeAway’s valuation compared with Airbnb’s: The former company’s value is real, the latter’s is merely hypothetical. For what it’s worth, HomeAway has been tweaking its business model to be more like Airbnb, which is clearly attractive to Expedia. Brian Pitz, an analyst with Jefferies, speculates that Expedia also might snap up similar non-specifically-travel companies including Yelp, GrubHub, and Groupon. It will be even more interesting if companies like Expedia and its rival Priceline begin buying down-on-their-luck private companies.
As Marc Benioff, CEO of Salesforce.com, noted last week at the Fortune Global Forum, the public markets instill discipline and clarity in many ways. Activision Blizzard is buying Candy Crush maker King Digital Entertainment for less than its IPO price, which is what happens to a hit-driven business when its hit slows.
As well, Square’s investment bankers, presumably having surveyed demand for its shares, plan to price the payment company’s IPO below its last private-market funding round. That would trigger a “ratchet” that would distribute additional shares to those investors, who agreed to Square’s last, lofty valuation of $6 billion (versus about $4 billion now) only on those terms. That effectively puts the lie to the former valuation, which is why I’ve called these hypothetical.
Yet another example of a theoretical valuation is what Fortune competitor Forbes Media got last year (in a private deal) from investors it is now suing. Forbes, it seems, lent its buyers some of the money for the deal, and the rude fellows haven’t made good on the loan, calling into question the value they agreed to in the first place.
The truth will out. And they typically will out in the public markets—and if not there, in court.
BITS AND BYTES
Yahoo considers reorganization. After a string of high-level executive defections, sources tell Re/code that CEO Marissa Mayer is requiring those who have stuck around to make three- to five-year commitments. What’s more, the struggling online media company has hired consulting McKinsey to prioritize which business units should receive investments and which should be closed. (Re/code)
Apple defeats class-action suit over bag searches. Workers in the company’s retail network had sued to be reimbursed for the time security personnel take to screen their briefcases or backpacks for merchandise as they leave stores for lunch or at the end of a shift. (Reuters)
Snapchat gains on Facebook in video. It handles 6 billion views daily, almost all of them on smartphones and triple the number it disclosed in April. That compares with the 8 billion the larger social network reported during its third-quarter financial update last week. (Financial Times)
Ericsson and Cisco team up. The two will create joint offerings for cloud computing services, mobile device management, and other telecommunications services. The pact could generate an additional $1 billion in revenue for each company by 2018. (Reuters)
Pinterest adds visual search features. Visitors interested in certain items can now hunt for similar things across the social network by highlighting that image, eliminating the need to type in descriptive words. The new technology will underpin future advertising services. (Wall Street Journal)
Verizon considers $10 billion sale of enterprise divisions. Sources tell Reuters the carrier may unload both the former MCI business, which sells Internet access and landline connections to large companies, and Terremark, which handles its data center services. Both are under pressure from cloud computing units of Amazon, Microsoft, and Alphabet. (Reuters)
This new Silicon Valley tenant shouldn’t expect the welcome wagon. Chicago-based law firm Edelson PC—which has sued Amazon, Apple, Facebook, Google, Netflix and many other tech firms—is setting up shop in San Francisco. One of its biggest cases, involving the accuracy of information published by data broker Spokeo, is being considered by the Supreme Court and could have huge ramifications for how businesses use personal data. (New York Times)
Walmart experiments with new way to spot shoplifters. The retailer is one of several testing facial recognition software that alerts store security on mobile devices when suspicious activity occurs. None have committed outright to the technology, however, because of privacy considerations. (Fortune)
Salesforce volume deals add new twist to an old story
Salesforce is dangling bigger discounts to win bigger volume license deals. That’s really nothing new, since Microsoft and Oracle have used this strategy for years to lock out competitors.
What is new is the sheer number of applications that the cloud software giant can sell into big companies, by virtue of its multi-year buying binge—everything from marketing services to business analytics. Salesforce’s discount strategy is also another sign that corporate accounts are becoming far more comfortable buying software as a subscription, reports Fortune’s Barb Darrow.
MORE FORTUNE TECH COVERAGE
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