Uber is planning its IPO and is valued at between US$ 48 and 70 billion, about five years after Twitter had a 24 billion-dollar valuation during its. This, was in spite of losses up to seventy-nine million that same financial year for Twitter.Facebook acquired WhatsApp a few years back for a staggering nineteen billion in spite of no revenues since inception for the latter. In sharp contrast, GE’s stock price tumbled down by more than two-fifths of its earlier value after reports about the behemoth’s first losses in half a century. There is a tremendous difference in company valuations between digital and industrial firms. A book written recently by a professor from the NYU Stern The End of Accounting states this conundrum about financial statements mattering less for the capital market decisions. This is because of returns on intangible investments increasing. The balance sheet and the income statement both do not account for intangible or rented assets. Airbnb’s properties, Amazon’s Buttons or Echo which is driven by Alexa, or the cars under Uber are not owner per se by the companies. In comparison, Wal-Mart owns hard assets worth aver one-hundred and sixty billion dollars. The real assets for digital companies are the vast treasure troves of data warehousing generated either by them or others’ which they may leverage. The digital age also works on a winner-takes-all model, so while Facebook is able to leverage billions of dollars being on top of the chain, the likes of Yelp or Twitter can only manage a mere handful in comparison. Management consulting, accounting and other professional services firms are also likewise reliant on human capital. Yet, there is a crucial difference as these companies’ revenues are dependent largely on the investments on the human capital, so the balance sheets invariably reflect the actual state, unlike that of digital firms.


Uploaded Date:03 March 2018

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