A number of ride-sharing companies including Uber and Lyft made news recently when banks revealed the estimate earnings, which led to speculation that the companies could be considering IPOs. According to reports, certain financial institutions think that Uber IPO can be valued at $120 billion in 2019 while Lyft could command $15 billion on its debut next year in 2019. The valuation of Uber, in particular, is impressive when compared to its previous valuation, while Lyft maintains defense mode on its last private valuation.
Nevertheless, the valuation clearly hints at the expectation of the banks that believe that public-market investors would pay higher or invest heavily on ride-sharing companies with gross margin much lower than that of tech companies as banks are trying to gather funds for. This means that there are possibilities of certain mismatch in the expected investment.
Another report states that big data company Palantir could gather $41 billion in a late 2019 IPO. Following the reports, the Wall Street Journal issued a detailed note on its recent financial performance and implied revenue multiple.
In the report, the Wall Street Journal mentioned that anything near $41 billion would be merrier for the company, given the company’s current size. Palantir has informed its investors that it expects to bag around $750 million in revenue in 2018, which is more than around $600 million revenue of last year. That would be equal to an IPO valuation of 55 times of revenue that the company expects to book in 2018.
For anyone reading about the news, it may sound bizarre for Palantir $41 billion IPO valuation. Here are some points that hint at reasons on why certain companies deserve more than the other companies on the revenue multiple bases:
- The companies with higher margins are more often provided with higher revenue multiples as compared to lower-margin companies.
- The companies that report of steady and quick growth are given higher revenue multiples than companies growing at a slower pace.
- Similarly, profitable companies are given higher revenue multiples than companies reporting fewer revenues.
- Companies reported recurring revenues are also given higher revenue multiples as compared with the discrete-sales companies.
The revenue multiples of Palantir depends on the number of parameters mentioned above that it falls into. The more of the parameters it achieves the higher would be its revenue multiples. Similarly, the more revenue the company generates, the more it will be able to gather when it launches its IPO.
Here are some other insights into Palantir’s overall working –
- Margins: According to reports, the service revenue of the company when looked like part of the top line mix is likely to lower gross margins as compared to poor performing companies.
- Growth: Palantir’s growth is steady and not rapid. The company’s year-on-year growth is said to be somewhere near 25% which is not going to help it bag 55 times revenue multiple.
- Profits: The Company has no reports of being profitable. It’s not a startup which is quickly growing. It has a 14-year old history, thousands of employees and a previous $20 billion valuation.