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> Substack, which takes a cut of its writers’ subscription fees, generated about $9 million in revenue last year, The New York Times reported. That means the fu

> Substack, which takes a cut of its writers’ subscription fees, generated about $9 million in revenue last year, The New York Times reported. That means the funding discussions valued the company at a hefty premium relative to its financial results. Substack was said to be valued at $650 million last year after the company closed a $65 million funding round. By any yardstick, a price/sales ratio of 72 is ludicrous. It's the kind of thing that can only happen within the safety of a financial bubble.

submeta 4y ago
Look at what happens here in Germany. A job portal for students just closed 45million Euros in Feb this year. They have raised 95m in 7 years. Their revenues in 2019 were merely a couple of million Euros. I can only guess their valuation.
roflyear 4y ago
No it is not. Not when you consider growth.
- azemetre 4y ago
  What is the point of growth if you can't make a successful business? Legitimate question here. I always had a hard time understanding, especially in regards to companies that are still not profitable or just barely after 10 to 20 years. Seems incredibly risky and not strong enough to weather any economic downturn. Are companies just copying the Facebook mantra from 2005ish? Didn't FB become immediately profitable once they started selling ads? That was pre ipo.
  - roflyear 4y ago
    Yeah but you're changing the subject. Obviously if the business is garbage it is garbage. I'm not saying these businesses are good. I'm just saying you absolutely cannot make a blanket statement like "valued at 72x rev is bullshit" if my business is growing even 2-3x a year, it could be ok. In a few years (6-7) if I keep that up my revenue will outpace even my original valuation. It means nothing to look at revenue and valuation alone.
  - hackernewds 4y ago
    You could argue the opposite. what's the point of great margins if you have no scale? look at the Amazon example. they were unprofitable for a very very long time. and the retail business is still very miniscule margins
    - Apocryphon 4y ago
      Isn't the Amazon the exception that proves the rule
    - throwaway0a5e 4y ago
      Amazon never made any profit because they were always reinvesting. If they had scaled back to "normal business" levels of ambition at any point they'd have been "normal business" levels of profitable.
    - swatcoder 4y ago
      > what's the point of great margins if you have no scale Profit? Niche ownership? Reliability? Durability? Expertise? It makes sense to worship the Church of Scale in a VC-adjacent forum like HN, but it’s not the only way to business.
    - scarface74 4y ago
      Please don’t use the “look at Amazon” example. Amazon had positive margins early on and was using cash to buy and build real assets. Amazon also pivoted to an entirely different business where most of its profit comes from - AWS. No, AWS wasn’t born from Amazon selling excess capacity. That’s just like saying that if every company rehired its first CEO it could be worth multiple trillions.
    - mupuff1234 4y ago
      The point of profit is profit. The whole premise of the VC/PE business is profits, just with different risk strategies.
      - rchaud 4y ago
        Profit for who? All VCs want is for the company to IPO, because that's when they can get their money back with a nice profit. The company itself doesn't have to be anywhere near profitability to IPO. Look at Uber, Airbnb, Dropbox, etc.
  - bko 4y ago
    Facebook has insane growth, even today. It had double digit revenue growth for over a decade. For instance, in 2021, their revenue grew 35%, the year before, 20%. You'll see similar numbers if you look at their MAU and DAU. With that kind of growth over a decade, pretty much any valuation is cheap today. Sacrificing even a little growth for revenue today is a bad tradeoff because of compounding effects. https://www.statista.com/statistics/268604/annual-revenue-of-facebook/ https://www.statista.com/statistics/268604/annual-revenue-of...
    - slater 4y ago
      And what's their profit for that decade+?
      - ZephyrBlu 4y ago
        A shit ton: https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/ https://www.statista.com/statistics/277229/facebooks-annual-...
      - bko 4y ago
        Similar growth in percentage terms (more actually as they're getting more efficient as they scale and have more user data). Pretty much all facebook numbers are up and to the right. https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/ https://www.statista.com/statistics/277229/facebooks-annual-...
  - mym1990 4y ago
    I think the 'successful business' part has become less relevant for investors that are just looking to exit sooner than later. The business model for many apps has become: make a product > obtain users > get hype > IPO > exit. At the exit portion, the product gets littered with ads, competition starts to catch up, and the product begins to decline. Obviously this is pretty reductive but this is generally what I have seen as a user of many apps in the past 10 years.
  - deleted 4y ago
    [deleted]
  - willcipriano 4y ago
    > What is the point of growth if you can't make a successful business? Ideally? To leave retail investors and pension funds holding the bag when it all blows up.
- yeaso9 4y ago
  s/Not when you consider growth/Speculate an unknowable future to empower finance markets
- sha256sum 4y ago
  Well the considerations of growth were wrong and that's why people are getting laid off.
- subsubzero 4y ago
  Growth where more growth leads to greater and greater losses, this sounds like 2000 all over again. You know what they say, those who don't learn from history are doomed to repeat it.
- Barrin92 4y ago
  the movie pass strategy. Sell people 2 dollars for 1 dollar and experience fantastic growth. Growth is irrelevant if you're not making money, in fact growth in that case means you burn it faster. Hopefully with the end of the easy money era this ridiculous business model dies out for good.
  - jonny_eh 4y ago
    True, but the distinction is revenue-to-cost per unit of growth.
  - bko 4y ago
    How are they selling $2 for $1? It's pretty much all employees. How many engineers do you need to support the platform? Probably not a lot. The other expense is paying upfront for content, but a few of the accounts I follow they did this for (e.g. Matthew Yglesias), they came out ahead (e.g. guarantee $250k a year while netting closer to $1 million for subscriptions) [0]. They can cut this out as well if they had to. Their platform is still strong. They just need to scale back their hiring excesses and bullshit jobs likely created. https://www.politico.com/news/magazine/2021/04/16/how-substack-revealed-the-real-value-of-writers-unfiltered-thoughts-482552 https://www.politico.com/news/magazine/2021/04/16/how-substa...
    - Barrin92 4y ago
      >How are they selling $2 for $1? the only value of the platform is in the creators, any team of devs can clone the product in a month. You're exactly right that they need barely any employees, because the technology isn't worth anything. The site has no moat or network effects so they will effectively need to subsidize the creators forever or not charge them anything, lest they run for the next platform. It's the same reason the ridesharing industry is a profitless money pit. Undifferentiated, easily copiable products compete each other into the ground on subsidized investor money while owning no assets of value.
      - dasil003 4y ago
        The USP would be their integrity. The vast majority of cloned sites would be looking to make a quick buck and would sell out their creators in a second. If Substack can prove they understand which side their bread is buttered and show some loyalty to their creators and not get too greedy, then I feel like it could be quite sticky. Of course they are likely too deep into the VC money to pull it off, but one can always hope!
- pastor_bob 4y ago
  growth? How many $5 subscriptions are people going to pay for factless opinion pieces by self-proclaimed experts of everything like Glenn Greenwald
  - rchaud 4y ago
    Precisely. They won't be able to build an independent business off $5 and $10/mo subscriptions per user. I worked at an energy trading desk some years ago, and market intelligence there came through hyper-focused industry newsletters, with crazy high subscription prices. It's like a Bloomberg terminal, or a Photoshop subscription: only worth subscribing if you are making several multiples of the cost back in profits. Substack's litany of 'investing' newsletters is basically a mommy blog version of that. Newsletters can't charge very much because we all know this stuff is available elsewhere, in higher quality. And non-financial newsletters probably can't charge at all, other than the small handful you see on their "Featured" page.
- tshaddox 4y ago
  The whole point of the term "financial bubble" is that an actual bubble is a great example of something that can grow a lot now but whose current growth should not be interpreted as evidence of structural stability or ability to continue growing indefinitely.
- mbesto 4y ago
  72x revenue is ludicrous even for SaaS standards in a bloated economy (circa Q3~Q4 2021) and considering growth.
  - roflyear 4y ago
    It is not blanket ludicrous. Not at all. If you expect the company to grow 100x next year, for example, it is not crazy at all. That's the extreme, but for example if they are valued at $72m and 72x revenue, and grow 100x the next year, now their revenue is $100m. That's great.
tempestn 4y ago
Technically their sales would be the full subscription fees, no? So price to sales would be considerably lower. Your point stands with price to revenue though. That said, Substack has an insane amount of brand recognition for a company that only generates $9M in annual revenue, so it doesn't tell the whole story.
- edmundsauto 4y ago
  What are they odds they switch to ad-supported when they realize their $9M in rev share is worth less than if they just ran ads? I hope they succeed, but if they don't - I hope people realize the value of the ad revenue model.
formvoltron 4y ago
I wonder how long the VCs want to wait. Can VCs take over and sell the company off to try & recoup their investment?
- gkoberger 4y ago
  Very unlikely. They probably don't have the voting shares, and in this market they definitely don't have the buyer. And lastly, don't forget, every single VC involved in this valuation supported the numbers you're reading.
mavelikara 4y ago
> By any yardstick, a price/sales ratio of 72 is ludicrous. It's the kind of thing that can only happen within the safety of a financial bubble. If not 72, what revenue multiples are more appropriate as per the yardsticks you are familiar with?
- drc500free 4y ago
  Single digits, going to low double digits in some industries. Here are a few industry averages: https://eqvista.com/revenue-multiples-by-industry/ https://eqvista.com/revenue-multiples-by-industry/
  - JamesBarney 4y ago
    One of the industries is Computer Software: Prepackaged Software 112.17% 17.81 And that doesn't take into account that Substack is doubling every 6 months So Substack is 2 doublings or 12 months away of growth from bringing it's multiple to the industry standard, that might be an aggressive evaluation but it doesn't seem insane. [0] https://www.statista.com/statistics/1243565/substack-paid-subscribers/ https://www.statista.com/statistics/1243565/substack-paid-su... * Not to mention most VC deals are sweeter than a pure purchase (in terms of being protected from a down round etc.. *
ryanSrich 4y ago
Series A companies routinely get a 100x on revenue. It’s just how things have worked out in the past 5-8 years. I’m not saying it’s right, but that’s the standard for a lot startups. Get to $1m in ARR, and then raise a $10m series A at a $100m valuation.
chaoz_ 4y ago
I agree that the ratio is crazy. What if it's still a "content acquisition" phase and only when their sub list reaches some huge N, they will try to figure out to get more money out of it? Or a LOT MORE depending on how shady they are willing to go. I guess, for creators it will be quite painful to migrate. Definitely a crazy multiplier, but not the craziest on the market given other parameters.
jacobr1 4y ago
The valuation isn't presuming a "mature" business at a 72x ratio, but rather there is a trend where the trajectory is something more reasonable. Is there a path to $90 million in revenue in the next 24 months? I'm sure there is a slide that shows something like that, which would be a 7.2 multiple.

submeta 4y ago

Look at what happens here in Germany. A job portal for students just closed 45million Euros in Feb this year. They have raised 95m in 7 years. Their revenues in 2019 were merely a couple of million Euros. I can only guess their valuation.

roflyear 4y ago

No it is not. Not when you consider growth.

azemetre 4y ago
What is the point of growth if you can't make a successful business? Legitimate question here. I always had a hard time understanding, especially in regards to companies that are still not profitable or just barely after 10 to 20 years. Seems incredibly risky and not strong enough to weather any economic downturn. Are companies just copying the Facebook mantra from 2005ish? Didn't FB become immediately profitable once they started selling ads? That was pre ipo.
- roflyear 4y ago
  Yeah but you're changing the subject. Obviously if the business is garbage it is garbage. I'm not saying these businesses are good. I'm just saying you absolutely cannot make a blanket statement like "valued at 72x rev is bullshit" if my business is growing even 2-3x a year, it could be ok. In a few years (6-7) if I keep that up my revenue will outpace even my original valuation. It means nothing to look at revenue and valuation alone.
- hackernewds 4y ago
  You could argue the opposite. what's the point of great margins if you have no scale? look at the Amazon example. they were unprofitable for a very very long time. and the retail business is still very miniscule margins
  - Apocryphon 4y ago
    Isn't the Amazon the exception that proves the rule
  - throwaway0a5e 4y ago
    Amazon never made any profit because they were always reinvesting. If they had scaled back to "normal business" levels of ambition at any point they'd have been "normal business" levels of profitable.
  - swatcoder 4y ago
    > what's the point of great margins if you have no scale Profit? Niche ownership? Reliability? Durability? Expertise? It makes sense to worship the Church of Scale in a VC-adjacent forum like HN, but it’s not the only way to business.
  - scarface74 4y ago
    Please don’t use the “look at Amazon” example. Amazon had positive margins early on and was using cash to buy and build real assets. Amazon also pivoted to an entirely different business where most of its profit comes from - AWS. No, AWS wasn’t born from Amazon selling excess capacity. That’s just like saying that if every company rehired its first CEO it could be worth multiple trillions.
  - mupuff1234 4y ago
    The point of profit is profit. The whole premise of the VC/PE business is profits, just with different risk strategies.
    - rchaud 4y ago
      Profit for who? All VCs want is for the company to IPO, because that's when they can get their money back with a nice profit. The company itself doesn't have to be anywhere near profitability to IPO. Look at Uber, Airbnb, Dropbox, etc.
- bko 4y ago
  Facebook has insane growth, even today. It had double digit revenue growth for over a decade. For instance, in 2021, their revenue grew 35%, the year before, 20%. You'll see similar numbers if you look at their MAU and DAU. With that kind of growth over a decade, pretty much any valuation is cheap today. Sacrificing even a little growth for revenue today is a bad tradeoff because of compounding effects. https://www.statista.com/statistics/268604/annual-revenue-of-facebook/ https://www.statista.com/statistics/268604/annual-revenue-of...
  - slater 4y ago
    And what's their profit for that decade+?
    - ZephyrBlu 4y ago
      A shit ton: https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/ https://www.statista.com/statistics/277229/facebooks-annual-...
    - bko 4y ago
      Similar growth in percentage terms (more actually as they're getting more efficient as they scale and have more user data). Pretty much all facebook numbers are up and to the right. https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/ https://www.statista.com/statistics/277229/facebooks-annual-...
- mym1990 4y ago
  I think the 'successful business' part has become less relevant for investors that are just looking to exit sooner than later. The business model for many apps has become: make a product > obtain users > get hype > IPO > exit. At the exit portion, the product gets littered with ads, competition starts to catch up, and the product begins to decline. Obviously this is pretty reductive but this is generally what I have seen as a user of many apps in the past 10 years.
- deleted 4y ago
  [deleted]
- willcipriano 4y ago
  > What is the point of growth if you can't make a successful business? Ideally? To leave retail investors and pension funds holding the bag when it all blows up.
yeaso9 4y ago
s/Not when you consider growth/Speculate an unknowable future to empower finance markets
sha256sum 4y ago
Well the considerations of growth were wrong and that's why people are getting laid off.
subsubzero 4y ago
Growth where more growth leads to greater and greater losses, this sounds like 2000 all over again. You know what they say, those who don't learn from history are doomed to repeat it.
Barrin92 4y ago
the movie pass strategy. Sell people 2 dollars for 1 dollar and experience fantastic growth. Growth is irrelevant if you're not making money, in fact growth in that case means you burn it faster. Hopefully with the end of the easy money era this ridiculous business model dies out for good.
- jonny_eh 4y ago
  True, but the distinction is revenue-to-cost per unit of growth.
- bko 4y ago
  How are they selling $2 for $1? It's pretty much all employees. How many engineers do you need to support the platform? Probably not a lot. The other expense is paying upfront for content, but a few of the accounts I follow they did this for (e.g. Matthew Yglesias), they came out ahead (e.g. guarantee $250k a year while netting closer to $1 million for subscriptions) [0]. They can cut this out as well if they had to. Their platform is still strong. They just need to scale back their hiring excesses and bullshit jobs likely created. https://www.politico.com/news/magazine/2021/04/16/how-substack-revealed-the-real-value-of-writers-unfiltered-thoughts-482552 https://www.politico.com/news/magazine/2021/04/16/how-substa...
  - Barrin92 4y ago
    >How are they selling $2 for $1? the only value of the platform is in the creators, any team of devs can clone the product in a month. You're exactly right that they need barely any employees, because the technology isn't worth anything. The site has no moat or network effects so they will effectively need to subsidize the creators forever or not charge them anything, lest they run for the next platform. It's the same reason the ridesharing industry is a profitless money pit. Undifferentiated, easily copiable products compete each other into the ground on subsidized investor money while owning no assets of value.
    - dasil003 4y ago
      The USP would be their integrity. The vast majority of cloned sites would be looking to make a quick buck and would sell out their creators in a second. If Substack can prove they understand which side their bread is buttered and show some loyalty to their creators and not get too greedy, then I feel like it could be quite sticky. Of course they are likely too deep into the VC money to pull it off, but one can always hope!
pastor_bob 4y ago
growth? How many $5 subscriptions are people going to pay for factless opinion pieces by self-proclaimed experts of everything like Glenn Greenwald
- rchaud 4y ago
  Precisely. They won't be able to build an independent business off $5 and $10/mo subscriptions per user. I worked at an energy trading desk some years ago, and market intelligence there came through hyper-focused industry newsletters, with crazy high subscription prices. It's like a Bloomberg terminal, or a Photoshop subscription: only worth subscribing if you are making several multiples of the cost back in profits. Substack's litany of 'investing' newsletters is basically a mommy blog version of that. Newsletters can't charge very much because we all know this stuff is available elsewhere, in higher quality. And non-financial newsletters probably can't charge at all, other than the small handful you see on their "Featured" page.
tshaddox 4y ago
The whole point of the term "financial bubble" is that an actual bubble is a great example of something that can grow a lot now but whose current growth should not be interpreted as evidence of structural stability or ability to continue growing indefinitely.
mbesto 4y ago
72x revenue is ludicrous even for SaaS standards in a bloated economy (circa Q3~Q4 2021) and considering growth.
- roflyear 4y ago
  It is not blanket ludicrous. Not at all. If you expect the company to grow 100x next year, for example, it is not crazy at all. That's the extreme, but for example if they are valued at $72m and 72x revenue, and grow 100x the next year, now their revenue is $100m. That's great.

tempestn 4y ago

Technically their sales would be the full subscription fees, no? So price to sales would be considerably lower. Your point stands with price to revenue though. That said, Substack has an insane amount of brand recognition for a company that only generates $9M in annual revenue, so it doesn't tell the whole story.

edmundsauto 4y ago
What are they odds they switch to ad-supported when they realize their $9M in rev share is worth less than if they just ran ads? I hope they succeed, but if they don't - I hope people realize the value of the ad revenue model.

formvoltron 4y ago

I wonder how long the VCs want to wait. Can VCs take over and sell the company off to try & recoup their investment?

gkoberger 4y ago
Very unlikely. They probably don't have the voting shares, and in this market they definitely don't have the buyer. And lastly, don't forget, every single VC involved in this valuation supported the numbers you're reading.

mavelikara 4y ago

> By any yardstick, a price/sales ratio of 72 is ludicrous. It's the kind of thing that can only happen within the safety of a financial bubble. If not 72, what revenue multiples are more appropriate as per the yardsticks you are familiar with?

drc500free 4y ago
Single digits, going to low double digits in some industries. Here are a few industry averages: https://eqvista.com/revenue-multiples-by-industry/ https://eqvista.com/revenue-multiples-by-industry/
- JamesBarney 4y ago
  One of the industries is Computer Software: Prepackaged Software 112.17% 17.81 And that doesn't take into account that Substack is doubling every 6 months So Substack is 2 doublings or 12 months away of growth from bringing it's multiple to the industry standard, that might be an aggressive evaluation but it doesn't seem insane. [0] https://www.statista.com/statistics/1243565/substack-paid-subscribers/ https://www.statista.com/statistics/1243565/substack-paid-su... * Not to mention most VC deals are sweeter than a pure purchase (in terms of being protected from a down round etc.. *

ryanSrich 4y ago

Series A companies routinely get a 100x on revenue. It’s just how things have worked out in the past 5-8 years. I’m not saying it’s right, but that’s the standard for a lot startups. Get to $1m in ARR, and then raise a $10m series A at a $100m valuation.

chaoz_ 4y ago

I agree that the ratio is crazy. What if it's still a "content acquisition" phase and only when their sub list reaches some huge N, they will try to figure out to get more money out of it? Or a LOT MORE depending on how shady they are willing to go. I guess, for creators it will be quite painful to migrate. Definitely a crazy multiplier, but not the craziest on the market given other parameters.

jacobr1 4y ago

The valuation isn't presuming a "mature" business at a 72x ratio, but rather there is a trend where the trajectory is something more reasonable. Is there a path to $90 million in revenue in the next 24 months? I'm sure there is a slide that shows something like that, which would be a 7.2 multiple.