Investors have flocked to buy shares of newly listed tech companies, believing in the potential of upstarts to transform their sectors. That excitement has given newer firms valuations several times higher than established companies in the same industries—even when those older companies have far more revenue and profits.
Your turn: Can you create a company worth as much as Airbnb?
Airbnb’s sky-high valuation—or market capitalization—suggests investors think that it has far more future potential than its leading competitors in both the hotel sector and the online travel booking sector. Try mixing and matching some of the world’s biggest hotel chains and the leading online travel booking companies to equal Airbnb in market capitalization.
Can you create a company worth as much as DoorDash?
Food-delivery leader DoorDash is growing revenue even faster than Airbnb—more than 200% in 2019, before the pandemic. The eight-year-old company—which makes money by taking a cut of every delivery—has yet to turn a full year profit. Its market capitalization now exceeds that of just about every large restaurant chain in the country, save for McDonalds and Starbucks. Its valuation is also eight times that of Grubhub, an older online-delivery company that has grown at a slower rate.
Note: Restaurant Brands International includes: Burger King, Tim Hortons and Popeyes. Yum Brands include: KFC, Pizza Hut, Taco Bell and The Habit Burger Grill.
Can you create a company worth as much as Snowflake?
New cloud computing and software companies have seen their stocks soar in the past year. The biggest entrant is Snowflake, which provides cloud data warehousing software. Stock market investors have valued Snowflake at more than 200 times its annual revenue, a very high mark that puts its market capitalization in the same league as longstanding, higher-revenue giants like IBM.
Why investors believe they're worth so much
Compared with the established market leaders, Airbnb, DoorDash and Snowflake have significantly less revenue, while profits have been infrequent or nonexistent. Investors are attracted to the newer companies’ rapid growth rates, and are betting they will overtake the current incumbents. Below, see the companies’ growth rates and revenue during 2019, before the global pandemic affected sales.
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Note: Snowflake 2019 data runs from February 2019 through January 2020