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MongoDB has a similar 20x ratio. I won’t argue if this is warranted, but companies like this have: - Very high gross margins once you take out fixed costs. (
by mathattack 8y ago
MongoDB has a similar 20x ratio.
I won’t argue if this is warranted, but companies like this have:
- Very high gross margins once you take out fixed costs. (80+%) This implies massive profitability once you exceed fixed costs.
- Negative net churn. (Their existing accounts grow more than they lose) This implies if they got rid of their sales force, they could still grow.
- Their payback on sales investments is quick, usually less than a year. This allows them to heavily invest in topline growth.
When you do all this, the math works at 10X in a low interest rate environment, or if you project a very long growth period. Perhaps 20X is Fear Of Missing Out?
The stock market’s reaction to SAP (Knocking off 5 non in value) suggests that 8-10X is more reasonable.