Aswath Damodaran on Beyond Meat vs Impossible Foods

Aswath Damodaran, the ‘Dean of Valuation,’ discusses the IPO market, sky-high valuations and the pitfalls of WeWork. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Steve Grasso, Dan Nathan and Guy Adami.

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Impossible Foods

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The ‘Dean of Valuation’ gives his take on the IPO market

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Transcript

Check out Beyond Meat Inc (NASDAQ:BYND) finishing the day hire shells shares well off their peak, but the stock is still up more than 500%. Since its may IPO all of this is rival impossible foods had a key ingredient in the impossible burger approved by the FDA sending the company sorry, to a $5 billion valuation impossible foods burgers rolling out tomorrow at Gilson. That's a Southern California supermarket. And the company plans to sell its products and grocery stores nationwide by next year. It's not all rosy though in the IPO market. Uber is down 25% since going public at a sky high valuation, and they aren't even the scariest cautionary IPO tale in recent memory. So let's bring in the dean evaluation himself Aswath Damodaran that will help us make a sense of the IPO market. shine a light on some of these IPOs. Professor always great to see you.

It's good to be back.

So let's let's start off with Beyond Meat with this. I mean, we always do that competition was looming, but it's knocking at the doorstep at this point.

I think it's interesting because I think Beyond Meat that the game to itself for a while and is the only macro bed you could make if you thought vegan and vegetarian food was on the horizon. But I think that's that's over now. It's impossible foods, not suggesting an overnight correction. But now you got a game, you got competition. And I think the competition is only going to get wider because they're going to be other listings in this space. I mean, the space is going to be big. The question is, is there enough room for all these players to become big players? I don't think there is.

And it may be early to try and think of evaluation for impossible. But in terms of I mean, if you think that the Beyond Meat evaluation has to come down, then then the then the impossible valuation can never be as high as any point. And Beyond's history.

It's never too early to start a valuation. And you're going to be wrong and horribly wrong when you start early. But you got to start early on these on these companies, and learn as you go along. So I think that, you know, I would be inclined to believe that these companies going to converge in value sooner rather than later, simply because when I look at them from the outside, I don't see why one company should be worth three, four or five times the other. So I think there's a convergence coming. And then the question is, when more players enter in, is, is the pie going to get big enough for all these players to stay big? And that's going to be the big question.

Let's move on to Uber because that seems like it's the poster child for a quote unquote, failed IPO and that it's below its its IPO price. At what point does this look attractive to you?

You know, Uber and Lyft. At the prices they're at, I think they I mean, if I were going to jump into this market, I would pick leftover Uber's. Still, simply because Uber's ambition scare me, I think that when you're too ambitious, you're going to spend too much. So if I were making a ride sharing, but I'd make it lift over Uber, but I think Uber at its existing price is not badly priced. I valued at about $30 per share the time of its IPO. And it's you know, it's very quickly adjusted down towards that level, I just think Lyft is a better buy.

So in terms of thinking about lives valuation mean, do you do impute that part of the valuation into Uber for its us business or does Lyft have a much better valuation in the US just because that's it's only market and it's focused on the US market.

It's not just that it's got a better valuation, even if you gave Uber and Lyft the same market share of the US market Lyft is just a better buy because you're getting it at a better market cap relative to that valuation. Uber you're playing paying for the global ambitions in car service, as well as Uber frayed and all the rest of the bed tubers trying to make. And I think you want to spread yourself too thin in this business right now. They have enough stuff on their plate with car service. That going out and looking for more trouble doesn't seem like a great strategy for me.

I want to move on to some of the IPOs in the pipeline. peloton. I'm not really sure what to compare this to. Are there comparables, what do you use?

I think you know if it breaks through in this space, it's going to it's going to recreate the fitness space right now is splintered. I mean you don't have very many players with more than two to $3 billion in revenues. So the peloton to be worth 8 billion in market cap or 10 billion at the 26 to 29. Offering price, it's closer to 10 than a billion because of the options outstanding. They need to have 810 $12 billion in revenues, either they're going to recreate this market by changing the way we exercise and they have a case to make that maybe the game is changing, or they just are not going to reach there. So it really has to recreate the fitness space. It's a fitness. I mean, if you think about it, it can't say a cult company. You cannot be a $10 billion company with only the 500,000 or million members. I mean, you're going to go 2345 million members and paying $40 a month. I mean that's two and a half time for a pay for Netflix and that doesn't strike me as something that most people would be willing to pay.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver