How to compare public and private organizations
As I’ve noted, "The public company is based on perception while the private company is based on profits" (Ken Hubbard). This distinction captures the essence of how these entities are valued, reflecting their unique environments, investor dynamics, and the broader economic context in which they operate. In today’s fast-paced markets, understanding this divide is more critical than ever as both public and private entities navigate a world of shifting priorities, technological disruption, and global uncertainty.
Public Companies: The Realm of Perception and Pundit Prognostication
For public companies, perception reigns supreme. Their market capitalization, determined by the daily ebb and flow of stock trading on exchanges, hinges on how investors, analysts, and the broader public perceive their future prospects. This perception-driven model thrives on pundit prognostication—forward-looking estimates of earnings, revenue growth, and market trends that shape investor expectations. Tools like the Discounted Cash Flow (DCF) model, which estimates the present value of future cash flows adjusted for risk, or the Price-to-Earnings (P/E) ratio, which compares stock price to earnings per share, are built on these projections. These metrics are often amplified by media narratives, social media buzz, and economic forecasts, turning valuation into a bet on potential rather than just present reality.
A striking example of this phenomenon is the meteoric rise of Newsmax’s initial public offering (IPO) in 2025. Launched with shares priced at $10, Newsmax’s stock surged over 2,000% within days, reaching a peak of $265 and briefly valuing the company at over $30 billion. This explosive growth was not fueled by robust profitability or a sudden surge in operational success but rather by hype and retail investor enthusiasm, particularly among audiences aligned with its conservative-leaning content. The rally highlighted how perception—driven by pundit optimism and market momentum—can catapult a public company’s valuation far beyond its current financial footing, illustrating the speculative nature of public markets.
This reliance on prognostication also exposes public companies to volatility. A single earnings miss, a shift in analyst sentiment, or a geopolitical event can send stock prices tumbling, regardless of a company’s underlying strength. The transparency required by regulatory bodies like the SEC—quarterly earnings reports, annual filings—feeds this cycle, providing data that analysts interpret through the lens of future potential. For investors, the allure lies in the liquidity and visibility of public markets, but it comes with the trade-off of valuations that can be as much about narrative as numbers.
Private Companies: The Anchor of Profits and Past Performance.
In contrast, private companies anchor their valuation in profits, rooted in past performance. Without a public market to reflect real-time sentiment, their worth is assessed through a more deliberate process, relying on historical financial data—revenue trends, profit margins, cash flow histories, and operational metrics. Valuation methods such as comparable transactions, which draw on the sale prices of similar private firms, or adjusted multiples (e.g., EV/EBITDA), are grounded in what the company has already achieved. While future projections play a role—most notably in the DCF model—they serve as an extension of past results, adjusted for growth potential and risk.
The illiquidity and higher risk inherent in private investments demand this focus on proven performance. Owners, venture capitalists, or private equity firms evaluating a private company prioritize tangible returns, as there’s no daily market to absorb losses or provide an exit. Negotiations for funding rounds or acquisitions often hinge on historical financials, with buyers seeking evidence of sustainable profitability or a clear path to it. For instance, a tech startup might be valued based on its past revenue growth and user acquisition metrics, while a manufacturing firm’s valuation might rest on consistent earnings and asset value.
This approach also reflects the control private owners exert over their narrative. Unlike public companies, which are subject to public scrutiny and market whims, private firms can operate with less pressure to meet short-term expectations. However, this comes with challenges—limited access to capital and a reliance on internal data or third-party appraisals can make valuations less dynamic but more conservative. The lack of a public benchmark means valuations often emerge from strategic discussions, where past performance sets the baseline and future potential adds a premium.
The Interplay and Nuances
This divide isn’t absolute. Public companies rely on past performance to inform their prognostic models—historical earnings and growth rates are critical inputs for analysts’ forecasts. Similarly, private companies must consider future potential to attract investors, especially in high-growth sectors like technology or biotech, where past profits may be minimal. For example, a private tech firm with little revenue but a promising patent might command a high valuation based on projected market disruption.
Yet the emphasis differs sharply. Public valuations are a dance with perception, where market psychology and pundit predictions can drive stock prices to dizzying heights—or depths—regardless of current fundamentals. The Newsmax IPO saga exemplifies this, where perception outpaced reality, only to face potential corrections as profitability lagged. Private valuations, meanwhile, remain tethered to the gravity of past profits, offering a steadier but less flexible measure of worth.
Broader Implications
This valuation dichotomy shapes how each entity operates. Public companies must cater to shareholder expectations, often leading to short-term strategies to boost stock prices, while private companies can focus on long-term goals, unburdened by quarterly earnings calls. In a world where markets react to headlines—be it a Federal Reserve rate hike or a viral tweet—public firms embody the speculative spirit of modern capitalism. Private firms, by contrast, embody a more traditional ethos, where value is built brick by brick through operational success.
As of July 16, 2025, with markets buzzing and economic forecasts shifting, this divide continues to define the corporate landscape. Whether it’s the perception-fueled rally of a media IPO or the profit-driven sale of a family-owned business, the foundation of valuation reflects not just numbers but the very nature of ownership and investment. It’s a reflection of markets versus ownership, speculation versus substance—a divide that shapes the future of business in America and beyond.
