SmileDirectClub’s Descent Continues

Morning Markets: Does anyone know what this company is worth?

The fascinating case of SmileDirectClub and its hard-to-nail-down-valuation continued this morning, with the recently-public direct-to-consumer teeth-straightening startup losing another 1.4 percent of its value as of the time of writing. The company shed around 12 percent yesterday, making today’s losses appear modest in comparison.

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The heavily-backed unicorn is worth $3.68 billion today, a fraction of its IPO valuation set in earlier this year when the firm was worth $23 per share and valued at $8.9 billion. Today, SmileDirect is worth $9.56 per share.

When we last checked in SmileDirectClub’s falling market valuation it was worth $3.94 billion. At that time I wasn’t convinced that it had too much further to fall. After all, the company had an entire year since its final private round to grow, surely it had added a good-sized chunk of value during that period; especially as it raised about a year ago, and therefore had plenty of capital to put to work.

But, no, since that small article the Nashville-based company has shed about a quarter billion dollars in value.

The SmileDirectClub saga could be viewed through the lens of private and public valuations, and the occasional disconnect between them. For example, if SmileDirectClub was worth $3.2 billion as a private company in October of 2018, it was probably not worth $8.9 billion a year later when it went public.

Rare is the company that can nearly treble in value in a four-quarter period. But since the IPO, the stock market has bid down the company’s valuation so sharply that it could be argued that the company is fairly valued now, and was therefore overvalued a year ago during its final private round.

If this is all a bit frustrating, I understand. During a period when companies are accreting lots of putative value, nailing down a fair market price can be a topsy-turvy process. But, undergirding the confusion around the value of certain assets is the fact that we’re constantly valuing unprofitable companies. That makes putting a price on them harder than, say, a profitable company.

Traditional valuation methods, like valuing a company on a multiple of its profit, don’t work with so many unprofitable companies going public this year. And, with many of them sporting huge, and complex businesses (Uber is a great example of this), valuing them is hard. This is at least partially how the private markets have gotten some companies very wrong this year (Uber, Lyft, SmileDirectClub, Peloton, etc.).

We’ve joked this year that “No One Knows What Anything Is Worth,” a post that we followed up with a lighthearted “No One Knows What Anything Is Worth, Part II.” Perhaps we shouldn’t have been joking.

Illustration: Dom Guzman