Since 2009 there has been proliferation of VC-funded unicorns in a variety of tech sectors, and the bubble has been blown on the hopes of finding the quintessential dual-sided platform which will monopolize either the search for or distribution of a certain product (or both). As public investors are learning from the recent offering of Uber however, not all “tech” companies and platforms are created equal.
When selling short equities, the investor has pretty much everything working against them. I’ll shortly run through the technical issues before moving on to the more interesting stuff- you can find them on many other websites so I don’t think I’ll need to elaborate much.
This should be a short piece, but I wanted to use a few examples to describe the assumptions inherent in stock prices and why investors need to think through stock valuations. Given that price is a major factor in predicting future returns, investors should of course be unwilling to pay anything greater than the present value of all future free cash flows, discounted at an appropriate rate for any investment.