It's not that they are insanely valued. It's that we don't know how to value them.
That's how I feel about this recent crop of initial public offerings, a crop that many think signify an obvious top that we can only fall from. Yep, Snowflake (SNOW) , the cloud-based analytics company, DoorDash (DASH) , and Airbnb (ABNB) , three of the biggest deals of the year, are considered the benchmarks of froth and I want to show you why that's not the case, even as I recognize how confounded and skeptical many observers may be about the valuations.
Snowflake, a provider of software solutions, seems like just one more cloud play. It's not. The company is a total disrupter, allowing companies to take advantage of all the data they have, literally by blowing out the data silos that currently exist for anyone who migrates to the cloud, and allows true sharing. It democratizes data analytics, which gives people who aren't classically trained computer scientists an opportunity to understand and apply a firm's data. You can't do that now.
Best of all it is run by Frank Slootman, who is a genius at shepherding young companies and taking them to a level not thought possible, which is a good place to try to put a value on Slootman and his enterprise. Right now, the market says Snowflake is worth $94 billion, even as it is relatively new and losing fortunes. However, its revenue is growing 119% year-over-year, which makes it the fastest grower by far in the segment. If that growth continues and if Slootman did what he did with Data Domain and ServiceNow (NOW) , then you will regret that you didn't pay these prices. That's right, if Slootman executes, you will look back and say, "why didn't I pay $90 billion for that money-loser?" It may very well be inexpensive. After all, wasn't Tesla (TSLA) , run by Elon Musk, inexpensive a few years ago in light of its current price? Slootman has a longer record of execution than Musk.
The stock of Doordash hit a low today of $147, down almost 50 points from its high, before going back to $160 and change. It's worth $51 billion, and remember that's what the collective wisdom of the market values it at.
Fanciful? Might be. Perhaps after everyone gets vaccinated, we will stop using Doordash or Uber Eats (UBER) of the reinvented GrubHub (GRUB) . In that sense it could be ridiculously overvalued.
I, on the other hand, think we have come to rely on this company and its competitors during the pandemic and we're not going back to the old ways. It's become the way for restaurants to get additional income and is a bit of a branding message to ensnare customers into the actual brick-and-mortar restaurant, particularly in the suburbs.
To me, this one seems steep. I am concerned that it is not proprietary enough to stay at this size, even as I think it is the category winner.
The cheapest of all might by Airbnb at $94 billion. I know it traded at $17 billion not that long ago, but that was the depths of the bear market, and I don't think it should matter. Like the other two companies, I like the CEO, Brian Chesky, a great deal. This company is as close to a monopoly on the cheapest way to take a vacation in any city. It took off when people realized that someone's house is a safer place to stay than a hotel. And it's a bargain vs. any nice hotel. Who is to say that this stock can't double if they keep growing quickly? Not me.
All of these prices can be justified by the Tesla criteria or Netflix before that and Amazon before that. All of those were ridiculed at one point. Not any more. The moral: Don't jump to conclusions about euphoria; the prices just might be right.
