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I think you did a very good job describing the valuation process. In the absence of a PE ratio, folks fixate on $ value per user. I'm not a VC, but I've seen
by mathattack 12y ago
I think you did a very good job describing the valuation process. In the absence of a PE ratio, folks fixate on $ value per user.
I'm not a VC, but I've seen a lot of valuations. Two caveats I would add:
1 - Investors will modify the amount based on growth. (300 million users at flat growth is worth less than 300 million users growing at 20% a quarter. This is the Twitter problem.)
2 - Investors will pay more for higher value users. Even if the path to monetization isn't obvious, high income users are worth more than low income users.
- ankurpatel 12y ago$ value per user makes sense but with viral growths there can be a viral decline in user base as well. To make it sustainable you need more than just an app which Facebook has. FB along with being an app is a site and a platform to log into any site you want and Snapchat is not.
- mathattack 12y agoAll very true. The value per user is just an imperfect heuristic when other measures (such as cash flows) aren't available. It's also a decent (and still imperfect) measure for acquisition value, though it has the limits that you mentioned.