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It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. Clearly there are valuab

It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. Clearly there are valuable companies in this category such as Amazon and Facebook early in their days as public companies. But trying to figure out what they might be worth someday is an exercise in predicting what the future of the world might be. It is not like making a calculation on the back of an envelope. So to the OP, yeah I totally agree. It's fascinating.

mruts 7y ago
Hypothetically, a companies value should be a sum of it’s expected infinite cash flows divided by the discount rate. If a company lost $10 one year, $5 another, and broke even the third a guess of making money the fourth year is probably more reasonable than a guess of making the average, even with a marginal book value. Therefore, I don’t think it’s that surprising that companies losing money are still worth a lot. This isn’t always a reasonable way to think of things, though. It’s important to consider the actual realities of the business. For Slack, I think it’s largely fine. There really shouldn’t be a hard constraint preventing them from making shit tons of money. Uber and Lyft are a different story. I have a hard time imagining a situation in which those companies will ever be profitable, even with self-driving cars, save one buying out the other.
- georgeecollins 7y ago
  Discounted cash flow analysis is not what is going on here. Looking at it historically, FB went public with a valuation that its web business at the time could never justify. If you assume people who bought at the price were making a rational calculation, they weren't valuing the business cash flow, they were valuing something else Facebook had. A technical capability, the management, a brand, the things that let them extend their business to mobile messaging and acquire WhatsApp and Instagram. What happened wasn't just cash flow growth. Ditto for Amazon and Google. I think that is what is going on with Uber. Their current core business will never earn enough to justify their valuations. Investors assume it will add new divisions and capabilities.
dcolkitt 7y ago
> It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. IMO the best justification for Slack's market value is that its likely to be acquired by one of the mega-cap tech companies in the relatively near future. Alone it may not be a profitable business, but integrated into a broader ecosystem like AWS or Microsoft Office or Facebook's network, may result in extremely valuable synergies.

mruts 7y ago

Hypothetically, a companies value should be a sum of it’s expected infinite cash flows divided by the discount rate. If a company lost $10 one year, $5 another, and broke even the third a guess of making money the fourth year is probably more reasonable than a guess of making the average, even with a marginal book value. Therefore, I don’t think it’s that surprising that companies losing money are still worth a lot. This isn’t always a reasonable way to think of things, though. It’s important to consider the actual realities of the business. For Slack, I think it’s largely fine. There really shouldn’t be a hard constraint preventing them from making shit tons of money. Uber and Lyft are a different story. I have a hard time imagining a situation in which those companies will ever be profitable, even with self-driving cars, save one buying out the other.

georgeecollins 7y ago
Discounted cash flow analysis is not what is going on here. Looking at it historically, FB went public with a valuation that its web business at the time could never justify. If you assume people who bought at the price were making a rational calculation, they weren't valuing the business cash flow, they were valuing something else Facebook had. A technical capability, the management, a brand, the things that let them extend their business to mobile messaging and acquire WhatsApp and Instagram. What happened wasn't just cash flow growth. Ditto for Amazon and Google. I think that is what is going on with Uber. Their current core business will never earn enough to justify their valuations. Investors assume it will add new divisions and capabilities.

dcolkitt 7y ago

> It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. IMO the best justification for Slack's market value is that its likely to be acquired by one of the mega-cap tech companies in the relatively near future. Alone it may not be a profitable business, but integrated into a broader ecosystem like AWS or Microsoft Office or Facebook's network, may result in extremely valuable synergies.