

User Bases, Pricing, Revenue, and the Value of Users - reitzensteinm
http://blogs.xobni.com/asmith/archives/66

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kansando
Unfortunately his analysis is not right. He is confusing revenues with
earnings. P/E of 60 is not the same as Price/Revenue of 60. If you are only
doing $1M/month and your margins are say ~10%, you will end up with a value of
$60M not $600M.

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adamsmith
Yup, totally right. Fixed now. Thanks!

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run4yourlives
The "success" number of $1M a month is a little high no?

Move that down to $100K - $300K and things look a little nicer for a new
startup.

Not that $1M/month is not a great looking goal, but in the traditional world
that would be a pretty established small business.

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axod
Interesting post. Shame there isn't any discussion of advertising revenue
though. Users that choose not to pay can still generate a lot of revenue from
advertising.

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jamiequint
I can't believe Salesforce has a PE of 1100, thats insane

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zhyder
Not really. For many high-tech companies, the earnings can vary a lot from one
quarter/year to the next. If the profit margin is hovering in the +/-10%
range, the P/E can vary wildly. Even in a low-earnings period, wall street
will typically not punish the company too much if it expects things to turn
around soon.

Regarding Salesforce.com in particular, looks like its 2006 profit margin was
9%, but 2007's was 0.1%. The street is still optimistic though, because the
company's revenues increased 60%.

For such companies, the P/S ratio is generally a more reliable metric to
compare with. Salesforce.com's P/S ratio is 8.8. For reference, Google's is
13.

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jamiequint
Still, Salesforce's forward PE is 300+. A wide variation, but still almost an
order of magnitude bigger than M$.

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zhyder
I wouldn't believe "forward" anything :). If Salesforce.com goes back to 9%
net profit margin next yr, its P/E will become 80. A P/E that's 1.5-3x that of
MS is reasonable, since MS's revenues are not growing much.

