Company fundamentals and what the media portrays

I was surprised to read that on-demand home cleaning company Homejoy is shutting down.

Homejoy cited employment lawsuits referencing its usage of independent contractors as a core reason for its closure but I don’t buy it. There are many on-demand companies facing similar employment lawsuits and they’re not closing. Homejoy is closing shop not because of employment lawsuits but because of fundamental performance reasons. Although I don’t know what Homejoy’s KPI and financial metrics look like, the impression that I had from the media articles I was reading about the company was that it was doing very well.

This mismatch shows that there can be a big difference between a company’s fundamentals and what the media portrays. This is especially true in private markets where, let alone the media, sometimes even a company’s investors don’t have a full view into what’s going on at the company.

And Homejoy isn’t the only company in this situation. There are other media darling companies trying to raise money that are having a lot of difficulty doing so. Whether these companies end up shutting down like Homejoy, or raising down rounds, it won’t be an attractive scene.

But it’s a necessary scene. When investors are forced to recognize losses or mark down the value of their holdings in media darling private market companies, there will be a return to a fundamentally justifiable level of investor demand. This will help normalize private market valuations.