It's turns out valuations are imaginary numbers that mean nothing?
I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that:
100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion.
Nice! Anybody interested in investing please get in touch I'm raising a series A.
Strangely enough, this happened last year. Ballast Point was somehow able to sell six-packs of beer @ $16 when all it's competitors were fighting each other around the $10-12 price point. Keep scaling those margins up then get bought out for $1 billion: http://www.latimes.com/business/la-fi-ballast-point-beer-dea...
>I once sold a $1 beer to a friend for $2. Let's back-of-the envelope that: 100% markup, $1 profit. If I buy and sell 1 billion beers per year, that's a profit of $1B/year. Ok, so given a 5 year return on investment, that means my beer business is valued at $5 billion.
And if you've convinced enough people that this is the case, so you get at least a few million dollars in investment, that would mean your company indeed has some value.
But selling $1 of beer of $2 to a friend once never got anybody anywhere.
You seem to conflate what happens in micro-micro-scale with what should be shown to be able to happen in the macro-world, for a valuation like $5 billion to start involving people investing lots of real money.
In other words, sure, valuations are based on extrapolation, but it's BS to think they're the same as (or based on) any small-scale extrapolation of an statistically insignificant transation (selling $2 worth of beer).
When the volume/sales/eyeballs/etc get so many that people start actually investing big money according to a large-sh valuation, the company has already passed a lot of basic tests...
I was being facetious. My point was to deminstrate a business that is clearly not worth 5b, but calculate myself a $5b valuation. Most real workd examples are more grounded than mine but still these are imaginary numbers.
They are definitely not imaginary, they just have probabilities baked into them. Many people traded around that valuation which is much different than your example.
Valuations of public companies aren't always rational in my opinion, however they are (again in my opinion) better assessments of value than any one person's estimate. If you disagree and think you are able to make a better prediction, then by all means don't leave a reply here, just short the stock (and with leverage - use options, etc).
Nah, you have to have explosive growth numbers with little context implying it will continue. So, cut deals to sell it at a restaurant, then a local event, and then one stadium. Numbers in individual beers will be multiplying. Clearly it will be millions or hundreds of millions of units in a year or two. So, maybe $5 billion to buy it while it's hot?
