Top Unicorns Are Overvalued By At Least 27%, And Rising

Top Unicorns Are Overvalued By At Least 27%, And Rising

The top 20 unicorns, such as Uber, Didi, Snapchat, Airbnb and Magic Leap, are overvalued by a median of 26.5%. These findings were published by says Zirra, a startup that has developed AI and machine learning technology to effectively analyze the private tech market.

Zirra valued the top 20 global unicorns and compared them with Wall Street Journal’s live list of private tech companies. The result was a median gap of 26.5%. It is quite possible to conclude that tech unicorns are overvalued, probably as they need to endlessly raise money and give new preferred stocks to convince new investors to jump on board, thus artificially pumping up valuation. Another reason for the overvalued market is VCs who value companies using pricing methods. These methods use relative valuation, pricing companies as a result of similar public and private companies in the market.

Apparently, we are still living in a bubbly, hyped era. Look at some of our biggest diversions from the common valuation attributed to the same companies. Big names are, for instance,  Xiaomi (29.6% gap, Zirra values at $32.4B while WSJ values at $46B), Airbnb (54% gap, Zirra values at $13.8B, WSJ values at $30B), WeWork (46.2% gap, Zirra values at $9.1B, WSJ at $16.9B), SpaceX (31.7% gap, Zirra values at $8.2B, WSJ at $12B), Dropbox (52% gap, Zirra values at $4.8B, WSJ at $10B) and Pinterest (60.9% gap, Zirra values at $4.3B, WSJ at $11B).

How does Zirra value private companies?

The Zirra Valuation Process uses AI and machine learning technology and it involves both Intrinsic and Relative valuation algorithms. The Intrinsic data includes revenue and expense estimations, traffic trajectories, investment history and velocity, based on aggregated sources. In the Relative analysis, data is compared and benchmarked with a database of 1,200 companies with correlation to stage, space, size and trajectory.

It then produces a map of competitors based on the data set, rated in accordance with the degree of direct competition, its size, threat, and proximity of the shared customer and partner base. Results are sent to relevant experts in our 450 strong expert community. Experts comment on both quantitative analytics (scores and metrics) and qualitative analytics (risks, opportunities, competitors).

Where do we get the data from?

Data is extracted from 85 different data sources, regularly updated (daily to weekly). Sources include both open and licensed directories such as the company website, Bloomberg, Linkedin, SimilarWeb and Adwords; It can be “derived data” such as Glassdoor reviews, consumer reviews, sentiment analysis from open web articles; or other data points such as academic researches, stock indexes, and macroeconomic parameters.

 Why we did it?

The private tech industry is one of the most secretive and mysterious – yet it is rich and growing rapidly. Those who are working in the startup ecosystem themselves, entrepreneurs, venture capitalists, reporters, are suffering from serious disinformation regarding the economy that surrounds them. The result of this panoply of secrets, taboos, and mysteries is enormous disinformation surrounding the startups market. Here at Zirra, we decided to do something about that. We have made it our mission to bring transparency to the private tech market.

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  1. Uber

Uber is possibly on its way to an IPO, as the company makes giant steps to become profitable. It is already profitable in developed countries, but ceding the Chinese market in exchange of 20% of Didi Chuxing’s shares stopped the company’s most serious cash bleeding. But Uber didn’t renounce global reach. The company is still investing hundreds of millions of dollars in its Indian subsidiary to compete with the local rival on the $10 billion market.

In the meantime, Uber’s financials were disclosed to the press. According to rumors, in the first nine months of this year, the ride-hailing company lost significantly more than $2.2 billion. Uber’s revenue has continued to grow even after leaving China, generating about $3.76 billion in net revenue in the first nine months of 2016 and is on track to exceed $5.5 billion this year.

Uber is also making the right moves towards an artificial intelligence based autonomous cars fleet. Within few months it acquired self-driving trucking company, Otto, launched UberFreight service and initiated a full-scale pilot of self-driving cars in Pittsburgh, although by law they are mostly driven by drivers with hands on steer wheel. Most recently Uber bought the mysterious AI company Geometric Intelligence and put its founder to lead Its AI lab. But Uber is not alone in this race, as Google has accelerated its autonomous cars go to market, Baidu runs similar project in Beijing, while manufacturers such as Ford and GM, and many startups such as Faraday Future and Zook are on the race as well.

In addition, Uber’s mission to lobby for legalizing UberX in some states in the U.S, as well as in Europe and India is still in full stream.  Valued by investors at about $68 billion, Zirra’s AI technology for analyzing private companies values Uber at $52 billion. In case the company decides to go public, Zirra values Uber at about $69 billion, higher than GM and Ford.

 

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2. Xiaomi

Xiaomi is commonly valued at $45 billion, but as the company failed to meet smartphones sales targets, it is more accurate to value it the company at $32-$33 billion. It is no longer a phone company, as it extended its portfolio of products to cameras, web-cams, VR headsets and even a scooter that has been just released into the market.

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3. Didi Chuxing

The Chinese ride-hailing app took over the local market after acquiring Uber’s China division, winning the campaign for China, but is very far from global domination. Zirra’s algorithms value Didi Chuxing at $32 billion, a number that expresses Didi’s victory in China. But the list of red flags regarding its future is noteworthy: unclear plans for expansion outside of China, sudden regulation implemented by the central and municipal governments, and a lack of autonomous cars strategy. Didi’s acquisition made Baidu a shareholder (2.3%), and since the Chinese search engine is already managing an autonomous cars pilot at Beijing, it is quite possible that the two will co-operate.

In addition, The completion of the rivalry between Uber and Didi, eliminated subsidies from the market, bringing drivers and passengers drop the service. According to market researcher Analysys, Didi’s active users decreased by 31%. Didi tries to compensate loss of drivers by contracting taxi companies, a move that attracts criticism from the media, claiming Didi is not a ridesharing app anymore.

 

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4. Snapchat

The much anticipated Snapchat IPO will probably proceed as planned in 2017. According to Zirra, Snapchat’s valuation at exit can rise as high as $26 billion, a whole billion more than the valuation estimated by the media. Valuation might rise higher if the company raises more money than initially expected and if its revenues grow at an accelerating pace during the interim period. Our algorithms base their estimation on the surge in Snapchat’s revenue after launching a blitz of successful revenue streams such as sponsored geofilters, animations, videos and native ads, which have produced more than $300 million this year only, 6 times more than in 2015. However, some risk factors might hinder Snapchat’s galloping success, such as Facebook’s copycats features embedded in Instagram and Whatsapp, and a lack of leadership as reported by the remote, Venice Beach, employees, feeling alienated by the management.

 

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5. Palantir

About a year ago, employees of the big data mining startup Palantir received leaflets from an anonymous artists telling them about the end of age unicorns, and demonstrating it with a drawing of a dead unicorn. Even if that’s about to happen, Palantir’s future seems rosy: two key people in President-elect Donald Trump’s team are involved in the company, and they can push governmental organizations to partner with the company.

The first is Michael Flynn, Trump’s national security advisor, who has helped advance Palantir’s cause in Washington. The second is Peter Thiel, Trump’s  Silicon Valley biggest and most famous supporter, who’s one of Palantir’s founders. Palantir might play a central role in the government’s attempt to find millions of undocumented immigrants and deport them back to their countries.

The federal administration and the U.S. Army are Palantir’s main customers, paying the company hundreds of million of dollars per year. Some risk factors include internal struggles with staff churn, overly dependant on the military industry, and an undervaluation made by some investors. Zirra, in fact, estimates Palantir’s valuation at $16 billion, which is lower in %20 from the common valuation.

 

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Zirra

 Zirra has developed AI and machine learning technology to effectively analyze the private tech market. It provides insights on startup companies, including estimated valuations, competitor lists, estimated time to exit, risk and success factors, as well as ratings of the team, product, momentum and execution. Based on its technology, Zirra serves investors, entrepreneurs and job-seekers with spotlight reports on companies, that help them learn more about companies they are engaging or competing with.

 

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