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So GM bought Cruise for $500MM in 2016 and Honda just invested in Cruise, valuing Cruse at $14.6B. Therefore the value of GM should be an extra $14B, and yet GM

So GM bought Cruise for $500MM in 2016 and Honda just invested in Cruise, valuing Cruse at $14.6B. Therefore the value of GM should be an extra $14B, and yet GM's stock has been flat since the purchase. What's going on here?

jedberg 8y ago
It could be that the stock market doesn't agree with that private valuation. Also, that valuation is a little odd because some of the investment doesn't kick in until they launch a product, and in the case of Honda, some of it is in machines and other non-monetary things. Or it could be that as Cruise's value goes up, GMs goes down. Look at what was Yahoo for an example -- for a while the stock was worth less than just the value of their Alibaba shares, meaning the stock market attributed a negative value to what was left of Yahoo.
- jameslk 8y ago
  The latter seems unlikely given the stock of Ford, Toyota and other related companies have mostly followed the same peaks and troughs of GM (for quick comparison, look at GM vs CARZ etf). Unless GM has managed to bleed the exact value of Cruise over that period.
- vonmoltke 8y ago
  > Look at what was Yahoo for an example -- for a while the stock was worth less than just the value of their Alibaba shares, meaning the stock market attributed a negative value to what was left of Yahoo. That is not what the situation meant. Yahoo was trading at less than their book value per share. The vast majority of their book value was the share of Alibaba the company owned. This asset was not generating revenue for Yahoo, nor was it a liquid investment that Yahoo could convert into cash whenever it wanted to. There may have also been other conditions on sale of the stake that meant, in at last some circumstances, the liquidation value of the stake was significantly less than the paper value on the books. Therefore, it gets discounted by the market. Since it comprised such a large portion of Yahoo's book value, the size of the discount was greater than the value of Yahoo's operations, leading to a price/book ratio less than 1. Yahoo's other operations still had positive value.

jedberg 8y ago

It could be that the stock market doesn't agree with that private valuation. Also, that valuation is a little odd because some of the investment doesn't kick in until they launch a product, and in the case of Honda, some of it is in machines and other non-monetary things. Or it could be that as Cruise's value goes up, GMs goes down. Look at what was Yahoo for an example -- for a while the stock was worth less than just the value of their Alibaba shares, meaning the stock market attributed a negative value to what was left of Yahoo.

jameslk 8y ago
The latter seems unlikely given the stock of Ford, Toyota and other related companies have mostly followed the same peaks and troughs of GM (for quick comparison, look at GM vs CARZ etf). Unless GM has managed to bleed the exact value of Cruise over that period.
vonmoltke 8y ago
> Look at what was Yahoo for an example -- for a while the stock was worth less than just the value of their Alibaba shares, meaning the stock market attributed a negative value to what was left of Yahoo. That is not what the situation meant. Yahoo was trading at less than their book value per share. The vast majority of their book value was the share of Alibaba the company owned. This asset was not generating revenue for Yahoo, nor was it a liquid investment that Yahoo could convert into cash whenever it wanted to. There may have also been other conditions on sale of the stake that meant, in at last some circumstances, the liquidation value of the stake was significantly less than the paper value on the books. Therefore, it gets discounted by the market. Since it comprised such a large portion of Yahoo's book value, the size of the discount was greater than the value of Yahoo's operations, leading to a price/book ratio less than 1. Yahoo's other operations still had positive value.