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Unicorn Mauling: Fidelity Slashes Valuation Of Startup Superstar Uber By 7.5%
One month ago, Fidelity started a firestorm in the venture capital community when hot on the heels of recent downward revaluations of such pre-IPO unicorns as Dropbox, and Square, the world's second largest mutual fund (which had previously been accused of venturing where it shouldn't by buying stakes in private-stage companies and subsequently having to value them on its own) took an axe to some of its private company investments, in this case slashing the value of Snapchat, the fifth highest valued "unicorn", by 25%.
This is what the FT said at the time: "Snapchat has been marked down by one of its most high-profile investors, raising further questions about the soaring valuations of private technology companies. Fidelity, the only fund manager to have invested in the four-year-old company best known for disappearing photos, wrote down the value of its stake by 25 per cent in the third quarter, according to data from investment research firm Morningstar. It had valued each share at $30.72 at the end of June but dropped the valuation to $22.91 by the end of September."
The FT's spot on punchline: "It is unclear why Fidelity marked down its stake" adding that Snapchat is still searching for a sustainable revenue model. Clearly one can see why there is so much confusion over what its "value."
However, Snapchat is not alone among the realm of "unicorns" or companies valued at over $1 billion that is "searing for a sustainable revenue", let alone profit, model.
We added that it is also unclear "if other Snapchat investors, such as VC titans Benchmark and Kleiner Perkins, as well as tech companies Alibaba, Tencent and Yahoo have followed Fidelity into what is becoming a widespread realization that not only was there a private tech bubble, but that it has now burst."
We doubt the answer was, or is, yes, adding that "a bigger question is whether it will be a controlled demolition as unicorns everywhere are demoted to what we first dubbed "zerocorn" status in the coming days. To be sure, the VCs are desperate for a controlled demolition, and hoping the broader market ignores the euphoria that took place in Silicon Valley over the past 3 years, is now over, and that giddy investors overshot by at least 25-35% to the upside in the past several private funding rounds as everyone was rushing to pass the valuation hot potato to ever greater, and richer, fools."
Aiding with this much-needed "controlled demolition", earlier today Bloomberg reported that in a move that will surely raise even more eyebrows if not launch a shockwave across Palo Alto just yet, Fidelity Investments said in its monthly holdings report that it has slashed the valuations of even more unicorns, starting with the biggest one of all, Uber, when it lowered the value of its stake in the company's Series D shares by 7.5% from Oct. 30-Nov. 30, while adding more pain to Dropbox investors when it lowered its value of the cloud service company by another -2.2%.
It wasn't all bad news: Bloomberg reports that Fidelity's valuation of BOX gained 12% while Twilio's pre-IPO value rose by 31% as it prepares to go public.
Still, the question remains: is this Fidelity trying to facilitate a smooth landing from the bubblesphere in what is now a burst "unicorn" bubble, or is the asset manager simply trying to reprice values to reality ahead of what may be a very unpleasant, for private companies which are still valued at stratospheric levels, 2016 especially if some or all of them scramble to find a public exit.
If the answer is the former, then as we concluded a month ago, it remains to be seen how successful they will be, and just what the source of capital for hundreds of "$1+ billion"-valued, cash burning companies will be in lieu of generous VCs, and just how viable the second tech bubble will be if these hundreds of companies suddenly are forced to generate cash flow to fund themselves.
In any event, no matter what the basis for the repricing is, there will be a whole lot more of it because as the WSJ kindly reminds us, as of today there are at least 143 private "unicorns" valued at $1 billion or more.
For the full list click on the image below.
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If anyone thinks that Uber will not disappoint greatly going frward, they will be in for a really rude shock. In the next two years we will see excess capacity being created by other Uber type services springing up and then the fun will begin.
When are we going to mark most of these unicorpses to what they are truely worth? ZERO dollars.
If there are no more Unicorns, where will we get Skittles?
Not to mention losing its competitive edge of being a "tech company" rather than a "transportation service."
Each and every place Uber does business will demand to be paid tribute, lest it lose control over existing services already paying.
Mark to fantasy still exists. Look at Zuckerturd's FaceFuck. All of the teens and college kids I ask (nephews, neices, and their friends) say nobody uses FaceFuck anymore. Of course none of them deleted their accounts, so they're still counted as "active" users. Even the younger guys at work in their 20's don't use it. I'm guessing most of the users are 40+ years old. The kids have all moved on to the next useless app.
"searing for a sustainable revenue" .... well that burns me up
And here I thought SnatchSnap was bullet proof. I mean it's been endorsed by Anthony Weiner and Brett Favre and all.
Out of the whole list of companies I only use Dropbox and Eventbrite and in neither case have I ever spend one thin dime on either.
Pets.com here we come.
I only pet the Spotify unicorn.
The basic economics of the Uber is upside down. The value of crowd sharing is that startups can use their users free labour or capital at near zero costs. What made Uber valuable was that they could get car owners to utilize their property and provide a utility. So billions were saved because Uber did not need to buy up a fleet of cars. HOWEVER, self driving cars will diminish the UBER fleet as humans can not compete, or sustain a living wage against the the marginal operating cost of an automated vehicle, thus they will pull their cars from ride sharing apps. As the market converges to the marginal operating cost, per any commodity, UBER will have to start investing huge amounts of capital to maintain its fleet. it cannot do this given the asymmetry between the asset purchase and the marginal profit with each automobile.
The longer they remain in the secondary market, the more likely they themselves are disrupted by automated vehicles. It doesn't make sense for a human driver to work below minimum wage, but automated vehicles can. And that is the crux of Uber's future problem, or any business model built on the shared economy.
Johnny Cab
Uber of the future.
Nevermind automated cars - if Uber is such a great business it is, by definition, not so great a business for Uber drivers or at least most Uber drivers.
I doubt very much that most Uber drivers have a good handle on what the all-in cost per mile of operating their vehicle is....although I'm sure Uber does. The Uber drivers who are actually making decent money (as opposed to the Uber drivers that think they are making decent money) are likely very savy about exactly what vehicle they use, where and when (surge pricing etc) they opperate etc.
Uber seems to be a great business for consumers but unless Uber has some whiz-bang tech that magically connects supply and demand in a way that no one else can figure out or legally utilize, I don't see why a future Craigslist of Uber can't crush the Uber of Uber.
they already have growing competition from Lyft
Transportation companies offering software and apps existed years before uber or lyft. Both of these companies invented nothing new, hold no patents and just wish to capitalize on ponzi multibillion dollar IPOs.
Uber sees a future in which it owns all modes of transportation. They will try to get laws passed that outlaws private ownership of vehicles. Think greed, I mean green. Then they will cut out the costs of drivers will self-driving cars. The herd will all be dependent on Uber.
"""The FT's spot on punchline: "It is unclear why Fidelity marked down its stake" ... Not.***
If one of the major (apparently conspiring) banks did it, it would be an obvious betrayal of (false, but apparent through actions) promises made. There is seemingly an implicit guarantee by the banks to maintain equity price... which serves their self-interest.
People do not seem to understand that all money is debt money and so all equity money is debt money as well. The ONLY non-debt assets on this world are what God has given us (and what the government and elitists have now claimed as their personal property) and our labor.
The true value of a company is what you get when you turn the lights off and send the auditors in to sell it,in most examples above that amount is fuck all.
C'mon -- that foosball table is worth at least $1500!
No? Well, would you be willing to give $150 for it?
No? Ok -- I'll give you $15 to get it the hell out of here if you never tell anybody where you got it from.
Valuation doesn't mean squat. Just like in 2001 or 2008 many, if not most, of these companies will crash and burn once things turn south in the global economy. If you're investing in start-ups at this point good luck.
Can anyone make a cartoon of these unicorns getting slaughtered? I would if it didn't look like something a 1st grader drew.
May I recommend playing through the Hercine Daedric Quest in Elder Scrolls "Oblivion". You get to do it yourself! elderscrolls.wikia.com/wiki/Hircine's_Shrine
OMG -7.5%? You'll probly come out ahead after taxes if you live in NYC.
Just sayin', that new No Tipping thing? They add 20% to your bill AND you pay sales tax on the added amount. Way to go, Danny whatever.
How is SpaceX not a sucker for the NSA? Teat sucker, I mean.
At this rate, in about five years, the most valuable asset will be your home garden.
Conventional valuation methods applied most companies have a value of less than 100 million Dollars. Uber at 50 billion current valuation is a clear sign that the medieval tulip boom is back. I would recommend not to touch the US venture shares. The awakening will be brutal.
In synch with the prior tech bubble peak and subsequent bust, all might remember how old media was dominated by dot.com adverts. For someone who lived in Europe and visited the US at that time it was incredible. This unicorn tech boom is qualitatively different in that the IPO cycle is much more delayed because there is a feedback loop between VC, PE and company execs to pump up the valuation price. What seems obvious is that when the IPO eventually comes, those who are being asked to purchase shares are taking a sceptical eye and applying their own forensics. What is harder to figure out is whether this wake-up call is equivalent to what occured in the prior tech bubble. This time the bubble seems as much in these companies as in the VC and PE financing. Is this on the verge of a blow up? I am not sure.