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If your product has no marginal cost (as much software effectively does) then you can justify any P/E with the prospect of increasing sales without increasing o
by opportune 8y ago
If your product has no marginal cost (as much software effectively does) then you can justify any P/E with the prospect of increasing sales without increasing opex or capex. Of course that's just an approximation since you will realistically have some kind of customer acquisition cost, some of which is also realized in adding more developers to create features that are adoption-blockers. But still, that scalability is what makes early stage software companies such attractive investments.
I would be much more worried about competition. Video conferencing has a small moat especially since major incumbents are already in the space
- deleted 8y ago[deleted]
- hrdwdmrbl 8y agoThough in economic theory cost should approach marginal cost
- stornetn 8y agoOnly if it's a very competitive market, and even that effect will only happen over time. Product differentiation introduces pricing power for individual firms, and depending on the style of competition you think will occur (e.g., Cournot oligopoly vs. Bertrand), you may very well never approach anything close to perfect competition with the small number of firms there are in this market.
- dragonwriter 8y ago> Though in economic theory cost should approach marginal cost ...in a perfectly competitive market. In a situation where monopoly rents can be charged (which is what having a moat is about), prices should hit the point where unit price × sales - cost is maximized.