We're brought in to double check, but also do conduct due diligence and valuation. There's some overlap between financial services and consulting companies. In some deals, you might have a bank on one side and a bank + consultants on the other.
Also, banks are good at doing standard, off-the-shelf valuations. They usually know little about the specific industry and use one-size-fits-all models.
If you want a detailed valuation, taking in account scenarios, industry changes, etc. you need people who know the industry pretty well, which usually means hiring consultants (who either are industry experts, or hire external industry experts).
In some cases, private equity firms also fill in the role of the bank in valuations. I've worked on a multi-party investment deal where one company had consultants (us), another had a bank, and another had a PE firm helping them. Looking at the different approaches and models from each company was a very interesting experience.
Actually most people DO trust them. I would eat my hat if 90% of people don't agree to sell their house at what the listing agent suggests.
I asked for a higher price on my house, and it took about 90 days to turn it over... was worth the wait though, say 15k more in my pocket.
I disagree. As Keynes stated, the market can stay irrational longer than you can stay solvent.
The interest rate for an energy conglomerate would not be something you would also use for a non-diversified tech company like Dropbox. As long as we could sell the number (both internally and to the client).
But within like OP said, the range of defensible numbers is still quite wide.
The article is selling standard business analysis, packaged as if it was some kind of brilliant visionary insight. This "Retro analysis"completely ignores new streams of businesses that Yelp is getting into such as Food delivery. These typically have much higher revenue albeit at lower margins, than just advertising. Not factoring it is a gross miscalculation. The article also fails to compare Yelp with Grubhub. Which would have produced a much more realistic expectation.
The article reminds me of this video by Steve Jobs discussing how Marketing & Sales end up destroying companies.
Until it's generating something (e.g. cash on the balance sheet or some other tangible benefit) I don't see how it would affect valuation at all.
Did I miss something or did the authors not mention a discount rate, or Weighted Average Cost of Capital (WACC)? Unless I'm wrong, a discount factor is needed to calculate the present value, regardless of using a probability-weighted DCF or a simple DCF model.
If true, then without more information on the WACC, the price they state does not only depend on our confidence in the forecasts and their respective probabilities.
Importantly he has a lot of sample models and calculations which will help make the principles "real" for those of you who prefer details to simplistic high-level concepts.
Something to think about.
> How are businesses who produce this kind of report evaluated?
These reports are made by sell-side analysts, and the banks are evaluated by how much profit their buy-side analysts can make. See a disconnect?
> Do people count the number of times they predicted correctly or incorrectly?
Google "analyst ranks", so I guess once a year, but investing is mostly a relationship-based environment so the actual ranks might not make a difference that often
I will say Dave Wessels is real good at this
Modelling startups is hard, because there is so much estimation and variance. But the fact that it's hard is why its so important.