5 ms·

Rather than just shouting "bubble" why not take an analytical approach to this by comparing them to other consumer SaaS companies. Last year DropBox made $240m

by ig1 15y ago

Rather than just shouting "bubble" why not take an analytical approach to this by comparing them to other consumer SaaS companies. Last year DropBox made $240m from from 2m paying customers (out of 50m users). So about $120/customer. DropBox's valuation is around $5-$10bn, around 20-40x revenue. Which given their growth rate seems a reasonable revenue multiplier. Over the same period Evernote made $18m from 750k paying customers (out of 20m users). So about $24/customer. A $1bn valuation would give a multiplier of 50x. LinkedIn is currently trading at 45x revenue - a figure that's been relatively stable for a while. So arguably 50x is high but not ridiculously so, if Evernote manages to double their customer base over the next couple of years (or their revenue per customer) which isn't unfeasible, it'll look cheap at that price. (Given Evernote costs $45/year that presumably means most of their customers signed up relatively late in the year resulting in the average revenue per customer being $24/year, so even if they only managed to keep their current customers they'd make 34m this year bringing their multiplier down to 30x)

antirez 15y ago
If we assume a bubble is an implicit, crazy multiplicator of evaluations, then it makes sense that if we are in a bubble companies are still relatively comparable. So this does not provide much info about the fact we are inside the bubble or not.
- deleted 15y ago
  [deleted]
3am 15y ago
50x is ridiculous, just not on a relative basis in among the peer group. Many retail companies trade at less than 1 (Walmart trades at .5, the S&P trades at around 1.5) Even larger tech companies like GOOG, MSFT, and ORCL trade at 3-4. So, looking at it analytically, the P/S of the average recent IPO is very high, and Evernote's valuation is extremely high, even compared to them.
- ig1 15y ago
  Most SaaS IPOs in recent years have been at 10x - but almost none of them were consumer SaaS so it's hard to say how the markets will treat them. It's not unusual that later stage companies will trade at lower multiples, and as companies become more mature their multiple drops. A good way of looking at it is in terms of future revenues, what's the chance of company doubling their revenue in the next couple of years ? For Walmart it's almost negligible, for Google it's small but not completely out of the realms of possibility but for Evernote and DropBox it's actually quite high. They're the leading products in immature markets.
- alain94040 15y ago
  Growth is critically important to the valuation. I think of it like a canonball: how high will you shoot? Here's the picture I drew: http://blog.foundrs.com/2011/10/27/how-to-compute-the-valuation-of-your-startup/ http://blog.foundrs.com/2011/10/27/how-to-compute-the-valuat... So, do you believe that Walmart will double in size in the next 2 years? I don't, and that's why their ratio is so low.
  - 3am 15y ago
    Walmart's P/S is low because their operating margins are so low, and Walmart's P/E is actually almost the same as Google's, because valuation is a function of cash flow, not sales. What kind of addressable market do you see for Evernote, and what sort of margins do you see them making over the long term? I just don't see an online note taking app being so difficult to reproduce, so I don't know if they have pricing power to generate the cash necessary to support a $1B valuation. Particular after you consider execution risk, and then leaving room for this round of investors to make an attractive return.
  - jellicle 15y ago
    Yes, growth is a factor... but there are only 7 billion people on Earth. Most of them aren't going to pay for Evernote - heck, most of them don't have a yearly income large enough to pay for Evernote. The valuations are getting to the point where they only make sense if Earth had many, many more people on it. Or if you are no longer looking at the fundamentals and are only betting that there's a "greater fool" who will come along after you and take the shares off your hands for more than what you paid for them. I would guess "greater fool" is in operation, and not any belief in value or growth.
jordhy 15y ago
The multiplier on this valuation is out of control. The 50x figure completely disregard the fact that Evernote is in a more competitive field than DropBox is. it also fails to account for the lesser brand value of Evernote and, dismisses international expansion as a key Indicator for the valuation. In my opinion, Evernote deserves a lower multiple than Dropbox.
horatiumocian 15y ago
I think that LinkedIn is trading at less than 20x revenue (revenue in 2011 was more than $500M, and market cap is around $10B)
- ig1 15y ago
  Ah you're right, I just pulled the linkedin revenue from Wikipedia which is actually the 2010 figure.
- deleted 15y ago
  [deleted]
moocow01 15y ago
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... Across the market the P/S is 1.28 according to this and it looks like the healthcare/internet industry is tops at round 4-5. Even a 'moderate' 20x is insane and not good for our industry from a holistic perspective.
tatsuke95 15y ago
I use, pay for and love Evernote. But: Valuations are usually based off of earnings, not revenues. Using revenues doesn't make much sense, unless you don't care about actually making money. You know, like Groupon. If you're spending 2 dollars to earn 1, who cares what your revenues are? Only in the land of bubbles does it make sense. Based on this math, Apple should be worth nearly 10 trillion dollars.
- moocow01 15y ago
  For most of these startups thats even worse... Linkedin's P/E right now is 895 ... Apple is 17
- damoncali 15y ago
  Not really. Valuations are base upon the expectation of future cash flows. That boils down to two things- how fast will those cash flows grow, and how much risk is their in those cash flows. I don't have the energy to figure out the growth rate implied by a 50X multiple on sales, but I can assure you it is astronomical - unreasonably so. But this doesn't mean that a company can't be worth more than its cash flows would indicate. Suppose the existence of a company (lets call it Instagram) threatens lots of cash flow of another company (for arguments' sake, call it Facebook). How much is Instagram worth to Facebook? Instead of using Instagrams cash flow to value the company (easy! zero!). You have to use the incremental (and negative) cashflows of Facebook due to Instagram's existence. If Facebook stands to lose, a few hundred million a year to competition, suddenly, Instagram is very valuable indeed, but only to a small, small number of entities - Facebook, and probably Google. In the end, it's all a speculative judgement call. But don't fall into the trap of evaluating small startups based on their own cash flow. All that said, I agree. 50x is stupid.
padmanabhan01 15y ago
//Rather than just shouting "bubble" why not take an analytical approach to this by comparing them to other consumer SaaS companies. The companies you are comparing it to are part of the bubble too. Their valuations are not set in stone.
damoncali 15y ago
50X revenue is perhaps a definition of ridiculous. They cannot grow this fast for long enough to make that rational. This is greater fool/strategic acquistion territory.
velshin 15y ago
The Fed economist Kevin J. Lansing has an excellent paper on asset price bubbles, written in 2007. http://www.frbsf.org/publications/economics/letter/2007/el2007-32.html http://www.frbsf.org/publications/economics/letter/2007/el20... "The market's meteoric rise is typically justified in the popular culture by some superficially plausible "new era" theory that validates the abandonment of traditional valuation metrics."
ebaysucks 15y ago
If evernote doubles it revenue every year for the next four years, it would still be trading at 3 times revenue, a number that might be realistic going concern assuming they have very high profit margins. So valuing them at 50x revenue now is saying all returns will come from outperforming 100% annual growth... color me sceptical.

by ig1 15y ago

antirez 15y ago

If we assume a bubble is an implicit, crazy multiplicator of evaluations, then it makes sense that if we are in a bubble companies are still relatively comparable. So this does not provide much info about the fact we are inside the bubble or not.

deleted 15y ago
[deleted]

3am 15y ago

50x is ridiculous, just not on a relative basis in among the peer group. Many retail companies trade at less than 1 (Walmart trades at .5, the S&P trades at around 1.5) Even larger tech companies like GOOG, MSFT, and ORCL trade at 3-4. So, looking at it analytically, the P/S of the average recent IPO is very high, and Evernote's valuation is extremely high, even compared to them.

ig1 15y ago
Most SaaS IPOs in recent years have been at 10x - but almost none of them were consumer SaaS so it's hard to say how the markets will treat them. It's not unusual that later stage companies will trade at lower multiples, and as companies become more mature their multiple drops. A good way of looking at it is in terms of future revenues, what's the chance of company doubling their revenue in the next couple of years ? For Walmart it's almost negligible, for Google it's small but not completely out of the realms of possibility but for Evernote and DropBox it's actually quite high. They're the leading products in immature markets.
alain94040 15y ago
Growth is critically important to the valuation. I think of it like a canonball: how high will you shoot? Here's the picture I drew: http://blog.foundrs.com/2011/10/27/how-to-compute-the-valuation-of-your-startup/ http://blog.foundrs.com/2011/10/27/how-to-compute-the-valuat... So, do you believe that Walmart will double in size in the next 2 years? I don't, and that's why their ratio is so low.
- 3am 15y ago
  Walmart's P/S is low because their operating margins are so low, and Walmart's P/E is actually almost the same as Google's, because valuation is a function of cash flow, not sales. What kind of addressable market do you see for Evernote, and what sort of margins do you see them making over the long term? I just don't see an online note taking app being so difficult to reproduce, so I don't know if they have pricing power to generate the cash necessary to support a $1B valuation. Particular after you consider execution risk, and then leaving room for this round of investors to make an attractive return.
- jellicle 15y ago
  Yes, growth is a factor... but there are only 7 billion people on Earth. Most of them aren't going to pay for Evernote - heck, most of them don't have a yearly income large enough to pay for Evernote. The valuations are getting to the point where they only make sense if Earth had many, many more people on it. Or if you are no longer looking at the fundamentals and are only betting that there's a "greater fool" who will come along after you and take the shares off your hands for more than what you paid for them. I would guess "greater fool" is in operation, and not any belief in value or growth.

jordhy 15y ago

The multiplier on this valuation is out of control. The 50x figure completely disregard the fact that Evernote is in a more competitive field than DropBox is. it also fails to account for the lesser brand value of Evernote and, dismisses international expansion as a key Indicator for the valuation. In my opinion, Evernote deserves a lower multiple than Dropbox.

horatiumocian 15y ago

I think that LinkedIn is trading at less than 20x revenue (revenue in 2011 was more than $500M, and market cap is around $10B)

ig1 15y ago
Ah you're right, I just pulled the linkedin revenue from Wikipedia which is actually the 2010 figure.
deleted 15y ago
[deleted]

moocow01 15y ago

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... Across the market the P/S is 1.28 according to this and it looks like the healthcare/internet industry is tops at round 4-5. Even a 'moderate' 20x is insane and not good for our industry from a holistic perspective.

tatsuke95 15y ago

I use, pay for and love Evernote. But: Valuations are usually based off of earnings, not revenues. Using revenues doesn't make much sense, unless you don't care about actually making money. You know, like Groupon. If you're spending 2 dollars to earn 1, who cares what your revenues are? Only in the land of bubbles does it make sense. Based on this math, Apple should be worth nearly 10 trillion dollars.

moocow01 15y ago
For most of these startups thats even worse... Linkedin's P/E right now is 895 ... Apple is 17
damoncali 15y ago
Not really. Valuations are base upon the expectation of future cash flows. That boils down to two things- how fast will those cash flows grow, and how much risk is their in those cash flows. I don't have the energy to figure out the growth rate implied by a 50X multiple on sales, but I can assure you it is astronomical - unreasonably so. But this doesn't mean that a company can't be worth more than its cash flows would indicate. Suppose the existence of a company (lets call it Instagram) threatens lots of cash flow of another company (for arguments' sake, call it Facebook). How much is Instagram worth to Facebook? Instead of using Instagrams cash flow to value the company (easy! zero!). You have to use the incremental (and negative) cashflows of Facebook due to Instagram's existence. If Facebook stands to lose, a few hundred million a year to competition, suddenly, Instagram is very valuable indeed, but only to a small, small number of entities - Facebook, and probably Google. In the end, it's all a speculative judgement call. But don't fall into the trap of evaluating small startups based on their own cash flow. All that said, I agree. 50x is stupid.

padmanabhan01 15y ago

//Rather than just shouting "bubble" why not take an analytical approach to this by comparing them to other consumer SaaS companies. The companies you are comparing it to are part of the bubble too. Their valuations are not set in stone.

damoncali 15y ago

50X revenue is perhaps a definition of ridiculous. They cannot grow this fast for long enough to make that rational. This is greater fool/strategic acquistion territory.

velshin 15y ago

The Fed economist Kevin J. Lansing has an excellent paper on asset price bubbles, written in 2007. http://www.frbsf.org/publications/economics/letter/2007/el2007-32.html http://www.frbsf.org/publications/economics/letter/2007/el20... "The market's meteoric rise is typically justified in the popular culture by some superficially plausible "new era" theory that validates the abandonment of traditional valuation metrics."

ebaysucks 15y ago

If evernote doubles it revenue every year for the next four years, it would still be trading at 3 times revenue, a number that might be realistic going concern assuming they have very high profit margins. So valuing them at 50x revenue now is saying all returns will come from outperforming 100% annual growth... color me sceptical.