Hacker News Reader

Comment by MDWolinski | Hacker News Reader

One day, I hope, people will inherently understand that Market Value != Business Value. Particularly in these days of extremely high valuation.

The stock market does not equal the economy. At best, it equals what 1% of the population thinks they can get out of the lower 99%.

View on HN

I don't think you're wrong exactly, depending on what you really mean here, but it's pretty misleading to frame this as an indictment of the stock market. WeWork's wild overvaluation was due to being privately held. As soon as they tried to IPO and had to present audited financials to accredited investors was when the valuation tanked. I don't know what better proxy measure exists for a business' "true value" if not market cap of publicly-traded equity.

> The stock market does not equal the economy. At best, it equals what 1% of the population thinks they can get out of the lower 99%.

WeWork's ridiculous valuation was not the stock market, it was VC private investors (mostly SoftBank) who hyped up the valuation.

When WeWork hit the stock market is actually when reality started to hit. They have NOT done well on the stock market and this is part of why they're about to go bankrupt.

Agreed.

I also hope that people understand why certain industries or companies trade at certain multiples, and that a company that clearly isn't in that industry can't magically claim that they are so they get a huge multiple.

WeWork is not tech. It was never tech. It will never be tech. It shouldn't have ever traded at tech multiples or valuations. The closest thing WeWork was to tech is that some tech workers worked out of places owned by WeWork. End of the day it's fucking real estate, nothing more, nothing less. Real estate that was poorly managed by a shady dude, nonetheless.

But alas, people want hype, and even more people want to believe the hype.

"WeWork is not tech. It was never tech. It will never be tech. It shouldn't have ever traded at tech multiples or valuations."

TBH, most tech shouldnt be traded at tech multiples of valuations.

That is also true, but the subset of companies that can be, does not include non tech companies. I mean, there are non tech companies that are worth a lot, lien coca-cola, or oil companies, or Walmart, but you can see what and how long it took to get there. They were not rocket ships.

Well this argument is really dumb as anyone could profit if they believe that the valutation will come down soon enough. For many failed startup this is at best benifit of hindsight. As wework proved that a company can't fool investors long term.

There are people who are sure the same will happen for Uber, Airbnb etc. Well profit off of it then by taking no risk.

Do you think that will happen before or after they understand the difference between debt and deficit?

But my MBA teachers working at FED told me that market value is a discounted sum of all future profits! How could they have been wrong?! [they somehow must have a crystal ball as well, or some Turing oracle for technical analysis]

It was MBAs and investment managers raising the alarm when they reviewed WeWork's S-1 in 2019 ahead of their IPO.

Marc Andreessen and the other insider techbros however continue to happily preach the gospel of Adam Neumann.

Hard to do that when the so-called business media simply regurgitate opaque private investor valuations as if they were real and reproducible.

> One day, I hope, people will inherently understand that Market Value != Business Value.

Interesting, can you flesh out your idea a bit more here. You make the claim but don't explain why or what those terms mean.

Business value is the value that a business creates through sales or services. So essentially, income - expenses + goodwill.

Market Value is the price of the stock x outstanding shares. The problem lies in that a stock price does not necessarily correlate to how well the business is doing or not doing. And the stock price can be manipulated by the Business (cut expenses to the bone to make the QTR/YR look fantastic) or by rumors or by loud mouths on TV who have a vested interest in the company, so they talk it up. Or by a tweet by the CEO claiming they'll be able to do something which everyone knows they won't, but hell, why not buy the shares.

Appreciate it!!

> Business value is the value that a business creates through sales or services. So essentially, income - expenses + goodwill.

Well WeWorks’ business value was negative as expenses always(?) exceeded revenue

Goodwill is the excess paid for a business over the value of the assets so it’s a fudge factor at best

When a founder of a company that’s never really made money walks away will hundreds of millions and everyone else gets stiffed you know there was something very wrong going on

Reply on news.ycombinator.com