Two companies. Both are listed on the ASX: one is a legaltech and one is a large law firm.

They have similar revenue and similar profit yet one is worth $3 billion more than the other.

You might have guessed that it’s the legaltech with the higher valuation. Legaltech company, Nuix has a market capitalisation of $3.14 billion. Shine Lawyers has market capitalisation of $152 million.

FY2020 annual revenue for Nuix was $176 million. Shine’s was $183 million. Nuix’s profit was $24 million and Shine’s was $21 million. Similar revenue and profit, yet Nuix is being valued by the market with a not-insignificant (almost) $3 billion premium.

Is Nuix overvalued or Shine undervalued? Maybe both?

Let’s take a look at another publicly listed law firm but listed on the London Stock Exchange, DWF. It generated a half year revenue of £167.6. Let’s assume that is £335 million for one year. DWF’s market capitalisation is £280 million. Interestingly, both Shine and DWF are currently valued at the equivalent of 83% of their annual revenue. 

Investor excitement is clearly with legaltech rather than big law. Last week we noted that Ansarada/thedocyard was valued at three times revenue and it did not show a profit in its accounts. Nuix’s valuation is almost 18 times revenue. 

Nuix is a company that is ticking all the boxes: tech, cloud, subscription revenue, global expansion potential and a poll position in a new and growing sector. Unfortunately, almost none of that can be said about biglaw.