4 ms·

YHOO used to be valued at $112B at its peak.

kennywinker 10y ago
It's turns out valuations are imaginary numbers that mean nothing? I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that: 100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion. Nice! Anybody interested in investing please get in touch I'm raising a series A.
- nickpsecurity 10y ago
  Nah, you have to have explosive growth numbers with little context implying it will continue. So, cut deals to sell it at a restaurant, then a local event, and then one stadium. Numbers in individual beers will be multiplying. Clearly it will be millions or hundreds of millions of units in a year or two. So, maybe $5 billion to buy it while it's hot?
  - kennywinker 10y ago
    From $0 in profit to $1 in profit. $1/$0 = NaN. My growth rate is so big it breaks calculators. Make the checks out to "K. Winker"
- harmegido 10y ago
  They are definitely not imaginary, they just have probabilities baked into them. Many people traded around that valuation which is much different than your example. Valuations of public companies aren't always rational in my opinion, however they are (again in my opinion) better assessments of value than any one person's estimate. If you disagree and think you are able to make a better prediction, then by all means don't leave a reply here, just short the stock (and with leverage - use options, etc).
- justin_vanw 10y ago
  This reminds me of the Mitch Hedberg bit: https://www.youtube.com/watch?v=GkUiRGQHjdc https://www.youtube.com/watch?v=GkUiRGQHjdc So probably 'there is more to it' than you are giving credit for. Kenny: Don't tell me my whistlin' is good, whistlin's dead, and we both know that.
- fullshark 10y ago
  Just because you can make terrible valuations doesn't mean all valuations are terrible/useless.
- coldtea 10y ago
  >I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that: 100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion. And if you've convinced enough people that this is the case, so you get at least a few million dollars in investment, that would mean your company indeed has some value. But selling $1 of beer of $2 to a friend once never got anybody anywhere. You seem to conflate what happens in micro-micro-scale with what should be shown to be able to happen in the macro-world, for a valuation like $5 billion to start involving people investing lots of real money. In other words, sure, valuations are based on extrapolation, but it's BS to think they're the same as (or based on) any small-scale extrapolation of an statistically insignificant transation (selling $2 worth of beer). When the volume/sales/eyeballs/etc get so many that people start actually investing big money according to a large-sh valuation, the company has already passed a lot of basic tests...
  - kennywinker 10y ago
    I was being facetious. My point was to deminstrate a business that is clearly not worth 5b, but calculate myself a $5b valuation. Most real workd examples are more grounded than mine but still these are imaginary numbers.
  - _nedR 10y ago
    The sort of thing described happens a lot though, way more than you seem to be implying. IMO a lot of investments of this nature (involving few participants) are just circle-jerks among rich friends.
- moeamaya 10y ago
  Strangely enough, this happened last year. Ballast Point was somehow able to sell six-packs of beer @ $16 when all it's competitors were fighting each other around the $10-12 price point. Keep scaling those margins up then get bought out for $1 billion: http://www.latimes.com/business/la-fi-ballast-point-beer-deal-20151116-story.html http://www.latimes.com/business/la-fi-ballast-point-beer-dea...
- mbesto 10y ago
  Except that's not how the stock market works... http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/m/marketcapitalization.asp

It's turns out valuations are imaginary numbers that mean nothing? I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that: 100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion. Nice! Anybody interested in investing please get in touch I'm raising a series A.

nickpsecurity 10y ago
Nah, you have to have explosive growth numbers with little context implying it will continue. So, cut deals to sell it at a restaurant, then a local event, and then one stadium. Numbers in individual beers will be multiplying. Clearly it will be millions or hundreds of millions of units in a year or two. So, maybe $5 billion to buy it while it's hot?
- kennywinker 10y ago
  From $0 in profit to $1 in profit. $1/$0 = NaN. My growth rate is so big it breaks calculators. Make the checks out to "K. Winker"
harmegido 10y ago
They are definitely not imaginary, they just have probabilities baked into them. Many people traded around that valuation which is much different than your example. Valuations of public companies aren't always rational in my opinion, however they are (again in my opinion) better assessments of value than any one person's estimate. If you disagree and think you are able to make a better prediction, then by all means don't leave a reply here, just short the stock (and with leverage - use options, etc).
justin_vanw 10y ago
This reminds me of the Mitch Hedberg bit: https://www.youtube.com/watch?v=GkUiRGQHjdc https://www.youtube.com/watch?v=GkUiRGQHjdc So probably 'there is more to it' than you are giving credit for. Kenny: Don't tell me my whistlin' is good, whistlin's dead, and we both know that.
fullshark 10y ago
Just because you can make terrible valuations doesn't mean all valuations are terrible/useless.
coldtea 10y ago
>I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that: 100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion. And if you've convinced enough people that this is the case, so you get at least a few million dollars in investment, that would mean your company indeed has some value. But selling $1 of beer of $2 to a friend once never got anybody anywhere. You seem to conflate what happens in micro-micro-scale with what should be shown to be able to happen in the macro-world, for a valuation like $5 billion to start involving people investing lots of real money. In other words, sure, valuations are based on extrapolation, but it's BS to think they're the same as (or based on) any small-scale extrapolation of an statistically insignificant transation (selling $2 worth of beer). When the volume/sales/eyeballs/etc get so many that people start actually investing big money according to a large-sh valuation, the company has already passed a lot of basic tests...
- kennywinker 10y ago
  I was being facetious. My point was to deminstrate a business that is clearly not worth 5b, but calculate myself a $5b valuation. Most real workd examples are more grounded than mine but still these are imaginary numbers.
- _nedR 10y ago
  The sort of thing described happens a lot though, way more than you seem to be implying. IMO a lot of investments of this nature (involving few participants) are just circle-jerks among rich friends.
moeamaya 10y ago
Strangely enough, this happened last year. Ballast Point was somehow able to sell six-packs of beer @ $16 when all it's competitors were fighting each other around the $10-12 price point. Keep scaling those margins up then get bought out for $1 billion: http://www.latimes.com/business/la-fi-ballast-point-beer-deal-20151116-story.html http://www.latimes.com/business/la-fi-ballast-point-beer-dea...
mbesto 10y ago
Except that's not how the stock market works... http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/m/marketcapitalization.asp