By Heather Clancy and Adam Lashinsky
November 9, 2015

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.

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