IPO's and Mega Valuations

IPO’s are big news these days. The Nykaa IPO just made Falguni Nayar India’s richest self-made woman billionaire, at $6-7 billion. Even a loss-making delivery app like Zomato listed on the stock exchange at a price that made it more valuable than the entire hospitality sector! The Policy Bazaar and PayTM IPO’s are other mega-valuations in the pipeline for loss-making companies.

 

On that point of loss-making companies with huge valuations (Nykaa is an exception on that front), Santosh Desai had written that Zomato made some wonder if the market “had lost all touch with and indeed interest in, reality”. It feels surreal:

“The apparently breezy efforts of some young kids out of college who not only are able to raise funds of a scale that boggle the imagination, lose money extravagantly and still generate staggering valuations, all in the blink of an eye. It does seem unfair.”

Or is this a sign that many believe that such companies, while loss making today, will make a lot of money later? Are they viewed (hoped) to be like Amazon, a company that scaled up massively, made huge losses for a very long time, but eventually turned around? Or are digital platforms so different that they must be evaluated differently than their brick-and-mortar counterparts? Time will tell.

 

Interestingly, a side-effect of such huge valuations can be beneficial to society:

“What valuations do additionally is to encourage risk-taking and help overcome the fear of failure... The insane valuations that a few get make it possible for private equity players to fund all those who fail. It also fires the imagination of a new breed of would-be entrepreneurs. The openness to new ideas, usually mooted by those with no background in business is a development of great import particularly in India, where historically entrepreneurship has been looked down upon.”

 

Or perhaps we should just take the philosophical view on all this:

“Eventually value is nothing but a convention that is widely agreed upon.”