How Do You Know What a Private Company’s Finances Look Like?

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This might be something you’re wondering about, as several private companies are planning initial public offerings (IPOs).

Software company Palantir filed confidentially to go public. Salad chain Sweetgreen has been rumored to be thinking about going public. Airbnb is headed towards an IPO.

So first off, to figure out how a private company is doing, you need to be resourceful and do a little math. Start off by searching various estimates of the total market for the good or service the company sells. Then, look at some of its competitors — some of which may be public, in which case you can see their revenues and earnings — and try to see what amount of spend remains for the private company to take. If you can find some statistics on market share from different players you can find a ballpark range of possibilities for what slice of the total pie your company is taking.

You can also see the company’s recent valuation and if you have a feel for what type of multiple of sales the company should fetch, you can divide the latest valuation by that multiple you’re using and figure out roughly what sales have been.

Here’s a quick example: Uber  (UBER) - Get Report is buying Postmates. One analyst estimates Uber Eats has recently been taking about 24% market share in online food delivery. Well, Uber Eats’ revenue for all of 2020 is expected to be about $2.5 billion. That number is 24% of about $10 billion.

Well, this analyst said he thinks Postmates has been taking roughly 10% market share. What’s 10% of $10 billion? That’s $1 billion. Another analyst had Uber’s market share at 29% and Postmates’ at 7%, so we can feel pretty confident about our ballpark range here, which is $1 billion give or take.

Another guidepost: the analyst said Uber’s 2.6 billion acquisition of Postmates represented a valuation on Postmates of a little over 1 times enterprise value-to-gross bookings. Gross bookings of $2.6 billion with a roughly 16% transaction take-rate is roughly $500 million in revenue, so that’s a lower end estimate.

Okay, there you have it. Postamates’ annual revenue has recently been running at somewhere near $1 billion or a touch under.

To see how to figure out the rest of the equation for profit estimates, see the quick video above. 

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