Today, Envestnet Inc. agreed to purchase Yodlee, a public company with a languishing stock price, for an enterprise value of $590 million.
In part, this transaction appears to be taking place because of the hazy value of data. An interesting blog post on WSJ.com post Friday asked whether the value of Yodlee’s data, which is key to its business model, is properly accounted.
Data is considered an “intangible” asset and often simply gets rolled into the catch-all category of goodwill. In Yodlee’s case, the value of goodwill amounted to $3.1 million at the end of March. Presumably, that also includes the value of anything not captured on the list of assets on the company’s balance sheet.
Such omissions are leaving a big hole in our understanding of companies. In fact, Leonard Nakamura, an economist at the Federal Reserve Bank of Philadelphia, estimated that the value of data and other “intangible assets” such as patents, trademarks and copyrights, could be worth more than $8 trillion. That’s roughly equivalent to the gross domestic product of Germany, France and Italy combined.
Truth be told, Yodlee is unique in that it has been a plodding fintech company. Yes, it’s revenue climbed about 22% to $23 million last quarter, but about the only thing consistent about the data company is that it consistently loses money — about $2.9 million last quarter. Since Yodlee’s IPO last fall, its stock [NASDAQ: YDLE] has lost around 6.25% of its value.
Yet, Envestnet is paying a 58% premium to today’s closing price for YDLE stock. What’s behind that?
The presumption is that Yodlee’s data should make the company worth much more than its market capitalization of $373 million. But the Financial Accounting Standards Board, better known as FASB, doesn’t allow for balance sheets to include data valuations. We asked FASB about this, and were told, “The project [to change reporting rules for data] was added to the technical agenda in November 2014. Since November the FASB staff has updated the Board on preliminary research and outreach to stakeholders. The Board thus far has made no technical decisions or conclusions for the project.”
Interpretation: Don’t hold your breath, folks.
Envestnet Inc., for its part, provides wealth management software and services to financial advisors and institutions, and presumably it will package Yodlee’s rich data set for sale to Envestnet clients. Despite Envestnet’s damp stock performance as well (-4% YTD), the deal should push its market cap up higher, perhaps closer to $2 billion from around $1.6 billion today, assuming it can generate greater revenue from Yodlee’s unique data. No matter what FASB says.