Instagram was worth $1B to FB (without any cash flow), because it could easily destroy 5x-10x that amount from FB's IPO valuation. A model for "valuation" is good CYA but nobody "needs" it when you are playing with orders of magnitude ROI. Just something to think about, when looking at valuation scenarios from Academics.
What we're talking about is how to value a company's ability to destroy another company's value, not how to value a company's ability to create value. That's like the business of assassination. Assassins can say what their price is to kill someone. If you took that business away, and that was their only way to demonstrate worth, then what do they have left? They'd have to get into a completely different business to continue life.
So if Twitter succeeds in assassinating Facebook's value, or even the entire company (unlikely, but let's just follow the line of thought to its logical end), what next? Where's their value going to come from next? If there was valid income generation that can simply take the place of Facebook (or anything else Twitter destroys), why couldn't that value have been measured already?
Or if it is measured already, is it just like how the Internet has caused the music industry to earn digital pennies instead of the past's analog dollars? That kind of sucks overall from a valuation perspective. But at least you killed the giant!
As General James Mattis once commented on military strategy and foreign policy following lessons from Afghanistan and Iraq: "You invade a country, pull down a statue, then say 'now what do we do?'"
Basically, I'd expect that the aggregate value on an exchange (as opposed to a buyout) going forward is going to tend to be more about the fundamentals (as the only thing that all investors have in common information-wise). At least in a scenario where there is no obvious buyout possibility in the short term.
This is a good point. But think of supply and demand, and how the market clears. Are the VC investors going to sell based on the same models that the retail investor is using? Probably not...And since the price is the <price at which bid/ask equate>, you need to look at the diversity of views on valuation. I guess that is more what I am saying.
If you or I buy a few shares of stock we'll likely not have any "synergies" to speak of so the actual earnings power of the company is important
68 days after the IPO, 47% of its initial value was wiped out. It has since recovered but the suspicion stands -- were we fleeced? Was the price artificially and strategically pumped up so as to encourage investment?
"Why not use your knowledge of the future to play the stock markets? We could make trillions."
"Why make a trillion when we could make... billions?"
No, you don't get it. Exponential growth is real. Ponzi schemes are the future.
Not to say you don't have a point, but I think the point you are making is less to be reflected in the revenue number but in the probability of the company surviving, which he put's at 100% in his assumptions... that does sound rich to me!
Communications and social platform, while they can have some pretty strong network effects, are not as important, even if they keep improving them,. A new generation of users might switch from Facebook to Snapchat, and it's irrelevant if Facebook adds the same kind of features. A new generation of users won't switch from Google to Bing, or something else, unless, as I said, Google stops providing the best results.
Whatsapp is used by more than 300 million users right now, more than Twitter. Do you think Whatsapp will still be as relevant 10 years down the road? The chances are pretty small, I think.
People just need good enough search, not the best.
In my mind, it is diversification that allows a tech company to stay afloat when new entrants can have such a rapid impact on the market.
It is in no way conceivable to me that the 'trendy' means to communicate will still be in 140 character morsels 10 years from now.
Of course a valuation is for the people who are optimistic about the future of the company, because that is who you are going to sell the stock to.
A twenty fold increase in revenue is not at all unheard of, and as far as I know a standard estimate in the sector.