Tesla came public in 2010 before the model S launched. Thus, the drift between “fair market value” and “private value” didn’t have as long to compound and reach such extremes. The difference is in the past companies were going public far earlier in their lifecycle. If they had been able to stay private until now, does anyone doubt they would have come public today at $80B too? But There Have Always Been Overhyped IPOs… If it takes 99 no’s for every yes, that one yes sets the new “clearing” price.Ĭompare that to Tesla which has been fighting shorts since 2010. There is clearly a winner’s curse element where, for the next round to be done at a higher price than the last, they need to find an even more optimistic investor. Venture capital, especially when it comes to these big “unicorns” (and when the Softbank polyannas are involved), is inherently optimistic. ![]() On the other hand, if the bears have no mechanism to express a view, then only the bulls will buy and it will be valued at the $100B best case (or $76B in the case of Uber’s last round). If they trade with each other, the market should clear around $50B. If you have a business with a binary outcome, a bull might think it’s worth $100B and a bear worth $0. Markets enforce discipline that is often lacking when ownership is confined to true believers. While there are many good things about private ownership, it is not meant to be a permanent condition. Tesla has been public for nine years while Uber stayed private. However, there is one big difference between Uber and Tesla. Some names retain large short interests for a long time. Lyft and Uber are far from the first controversial names to IPO and attract a lot of shorts. This will likely keep rising as Lyft is 62% shorted!!! The cost to borrow Lyft is 14%! There is a lot of short squeeze risk there yet the bears are not deterred. Per Bloomberg, after three days of trading, Uber already has 11% short interest. Maybe those explanations have some credence but the bigger issue is there was pent up demand to short the stock. ![]() Someone must surely be to blame! Did the bankers give bad advice? Were the managements too greedy holding out for the best price? Did the media fail to generate sufficient retail froth? What Really Happened Uber is down nearly 20% from its IPO with Lyft down over 30%. Tl dr Private markets distort valuations because there are only bulls setting prices
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