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Could somoene explain to me how a company can trade so far below the value of it's assets. It seems crazy to me. I understand that the assets are illiquid and y

Could somoene explain to me how a company can trade so far below the value of it's assets. It seems crazy to me. I understand that the assets are illiquid and you wouldn't get the full value in a fire sale, but doesn't this situation essentially put the board in the position where just by firing Masayoshi Son they'll practically double the value of the company overnight. Does anyone seriously believe that Masayoshi's investments could possibly return that much value to shareholders?

busterarm 6y ago
The idea is that firing Son would also signal that all of the assets need to be revalued immediately. The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff. They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets. It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.
- busterarm 6y ago
  As an aside, I really want to know how much grease has been paid to get tech/investment journalists to write positive stories about WeWork during Coronavirus lockdowns. It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
  - octoberfranklin 6y ago
    > I can't find anyone rational who agrees with any of it. I say this about pretty much everything in the mainstream media nowadays, whether it's WeWank-related or not.
- octoberfranklin 6y ago
  > we need a law that forces unproductive assets to turn into write-downs after some window of time We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death. Unfortunately it got repealed by Zero Interest Rate Policy. In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
  - busterarm 6y ago
    100% agreement, except that I see it as more of a "zombie bank investment" problem than a "zombie startup" problem. The scale and negative follow-on effects of unproductive landholding is much worse than this problem isolated to the tech industry.
code4tee 6y ago
1) The assets are not liquid. 2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings). 3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term. 4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.
- whatok 6y ago
  Liquidity doesn't begin to explain the valuation question. SoftBank's market cap was once 110bn vs their stake in Ali Baba at 150bn [0] . Even if you marked all the Vision Fund nonsense to 0, SoftBank is still a real company that does stuff outside of being a bad PE/VC/HF firm. [0] https://www.reuters.com/article/us-softbank-group-alibaba/a-stock-and-a-hard-place-softbanks-150-billion-alibaba-warchest-in-spotlight-idUSKBN20624V https://www.reuters.com/article/us-softbank-group-alibaba/a-...
  - reducesuffering 6y ago
    I think the market was factoring in SoftBank's 160B of debt. Even if their Alibaba stake is 150b, if it's tied to the company holding 160B in debt, it's actually only offsetting a huge debt load... I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
- treis 6y ago
  >Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.
itsoktocry 6y ago
>Could somoene explain to me how a company can trade so far below the value of it's assets At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.

busterarm 6y ago

The idea is that firing Son would also signal that all of the assets need to be revalued immediately. The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff. They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets. It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.

busterarm 6y ago
As an aside, I really want to know how much grease has been paid to get tech/investment journalists to write positive stories about WeWork during Coronavirus lockdowns. It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
- octoberfranklin 6y ago
  > I can't find anyone rational who agrees with any of it. I say this about pretty much everything in the mainstream media nowadays, whether it's WeWank-related or not.
octoberfranklin 6y ago
> we need a law that forces unproductive assets to turn into write-downs after some window of time We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death. Unfortunately it got repealed by Zero Interest Rate Policy. In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
- busterarm 6y ago
  100% agreement, except that I see it as more of a "zombie bank investment" problem than a "zombie startup" problem. The scale and negative follow-on effects of unproductive landholding is much worse than this problem isolated to the tech industry.

code4tee 6y ago

1) The assets are not liquid. 2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings). 3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term. 4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.

whatok 6y ago
Liquidity doesn't begin to explain the valuation question. SoftBank's market cap was once 110bn vs their stake in Ali Baba at 150bn [0] . Even if you marked all the Vision Fund nonsense to 0, SoftBank is still a real company that does stuff outside of being a bad PE/VC/HF firm. [0] https://www.reuters.com/article/us-softbank-group-alibaba/a-stock-and-a-hard-place-softbanks-150-billion-alibaba-warchest-in-spotlight-idUSKBN20624V https://www.reuters.com/article/us-softbank-group-alibaba/a-...
- reducesuffering 6y ago
  I think the market was factoring in SoftBank's 160B of debt. Even if their Alibaba stake is 150b, if it's tied to the company holding 160B in debt, it's actually only offsetting a huge debt load... I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
treis 6y ago
>Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.

itsoktocry 6y ago

>Could somoene explain to me how a company can trade so far below the value of it's assets At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.