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No, the investors are buying 2% of the equity, and by paying $200 million they indicate that they estimate that all of the equity together (the whole company) i
by bayesianhorse 13y ago
No, the investors are buying 2% of the equity, and by paying $200 million they indicate that they estimate that all of the equity together (the whole company) is worth $10 Billion.
Return on investment would mean that the investors expect the valuation to rise, or that they derive some other kind of profit from owning the shares (sometimes patents, knowledge, influence etc).
- benmanns 13y agoI think the commenter was referring to the $200 million revenue (not even profit) over the $10B price.
- blah32497 13y agoEDIT: "benmanns" pointed out the point of confusion. thanks! I don't think we're disagreeing. Sure they bought 2% not 100% of the company, but that's not really relevant. The $200M/yr they currently make is I assume profit - which is either payed out as dividends or invested back into the company. It's not really important which ones b/c the two are in the grand scheme of things equivalent. An investment increasing the worth of the company and therefore the worth of their share of it. I feel like in the end it still represents an expectation of 2% growth...
- vasilipupkin 13y agoNo. The expectation of growth should be roughly similar to growth of similar tech companies. Typical return on equity of an S&P 500 company is about 15-16% per year, so investors should expect probably at least that much and more like twice that
- blah32497 13y agoWell why doesn't that square up with the valuation then? Did Dropbox lowball themselves?
- clarky07 13y agoNo. You don't pay 50x revenue for 2% growth. That is a huge valuation and it means they are expecting more like 50-100% growth for a few more years.