The Power Of The Private Market

Two amazing American companies IPO’d in 2004 — Google (GOOG, GOOGL), and Domino’s Pizza (DPZ). 

Since then, Google (now Alphabet) has become one of the largest companies in the world. Today it’s worth more than $1 trillion. Domino’s is currently valued around $15 billion.

So it might surprise you to learn that Domino’s shares have outperformed Google’s since the IPO, according to a CNBC analysis from February 2020. 

  • Domino’s return since IPO: 5,438%
  • Google return since IPO: 2,939%

Part of the answer to how Domino’s beat Google is that Domino’s paid a regular dividend. Those who reinvested the dividend and held tight did incredibly well. This is the power of compounding in action.

But it still seems odd, doesn’t it? It begins to make more sense when you look at how much the companies were valued at when they went public. 

Google’s market cap (valuation) was already large — at $23 billion — when it IPO’d. Domino’s was worth less than $1 billion when its IPO occurred. So stock market investors were able to invest when DPZ was a much smaller company.

This example highlights a big problem in our markets — hot tech companies are going public too late. Google was already a $23 billion bruiser by the time most people could invest. Investors in Google have done well, but there’s only so much that shares can increase from that high of a starting point.

The early, private investors in Google are another story altogether. It is estimated that Sequoia — a leading VC firm — made $4.2 billion from their $12.5 million investment in Google. Google’s few angel investors (who got in much earlier) probably made thousands of times their money, but it’s hard to find verified data on that.

Accessing Private Markets

Since 2004 when Google and Domino’s IPO’d, the situation in public markets has become much worse. In 2012, Facebook IPO’d with a $104 billion market cap. And last year Uber UBER IPO’d at an $84 billion valuation. For most fast-growing companies, the amount of money available to them in private markets makes an early IPO not worth the effort.

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William K. 1 week ago Member's comment

This seems like some good advice indeed. And a useful list WHO, although not much "HOW." So thanks for a potentially profitable bit of information.