By Chloe Aiello
Investor sentiment is easy to track on the public markets, but private trends are more opaque ー and tech investors are increasingly prioritizing profitability over valuation. That's good news for companies looking to go public, like Airbnb and Lyft, but Uber might want to consider an alternative path to liquidity, J. Michael Ostendorff, director for Lagniappe Labs, told Cheddar on Monday.
"All the talk was about Uber going out at a $120 billion valuation, I find that highly unlikely ー I think Lyft is probably better-positioned," Ostendorff said.
Lagniappe Labs created the Prime Unicorn Index, which tracks U.S. private companies valued at $500 million or higher. Ostendorff said it's becoming less acceptable in private markets for start-ups to hemorrhage capital as they grow.
"You see companies that have been going out losing billions of dollars in cash, while taking on billions of dollars in cash in private markets. Their ability to answer to profitability in their revenues is becoming increasingly of concern not only for the investors, but the companies and early shareholders," Ostendorff said.
These days, even a valuation over $10 billion isn't always enough to distinguish a company ー and valuations don't necessarily represent the whole picture of a company's health. Take Blue Apron ($APRN) and Snap ($SNAP) ー both suffered from over-hype and overvaluation before their public offerings, Ostendorff said. Blue Apron's high customer acquisition costs, for example, indicated concerns about profitability. Both companies have fared poorly in the public markets.
Uber, with its sky-high valuation, could also suffer in an initial public offering. Ostendorff said that in order to hold onto its valuation, the ridesharing company might consider a road-less-traveled to liquidity. Spotify ($SPOT), for example, went public via a direct listing, which meant it offered no shares, but allowed existing investors to sell to the public. Ostendorff said Uber's rival Lyft is likely in a better position to IPO than Uber because "the revenue numbers speak better, and also they've kind of done a better job of controlling their market cap and not taking on too much outside capital." The two rideshare companies are neck-and-neck in a race to go public this year.
But Ostendorff is most optimistic about Airbnb in 2019.
"I would say that Airbnb probably has the greatest opportunity for a valuation appreciation in the public markets, should they go that route," he said.
For full interview click here.