I am trying to figure out how to value tech companies like Square but a normal DCF is not working. Any insight would be greatly appreciated!
Trending Content
Career Resources
WSO Free Modeling Series - Now Open Through
May 31, 2024
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
Probably do some market comps analysis based on its competitors. Find Their average EV/EBITDA multiples and apply it to Square. Or you could try backing into Enterprise value by taking Equity value + net debt. Take their stock price*diluted shares outstanding + Debt - Cash and cash equivalents.
Length squared
What exactly about your DCF isn't working?
For most tech companies its a matter of starting with a revenue multiple based on comps and then adjusting that multiple up or down based on growth trajectory/TAM, stickiness of revenues (absolutely essential "as a Service" enterprise software that has revenue contracted out 2 years in advance vs. consumer internet or capacity usage companies that are potentially variable QoQ are gonna be treated differently), potential outperformance over broader expectations, how close they are to profitability / FCF etc.
Do people still do DCF? Everything I see is just based on comps.. revenue for tech growth companies, EBITDA for some industrials company in the Midwest. Then add back a billion in revenue or EBITDA to account for covid
You dont, you just hit the buy button
https://www.macroaxis.com/invest/ratio/SQ/Current-Valuation
If you're doing a valuation for investment banking purposes, usually comps are pretty much the way to go since it is not even remotely possible to predict the FCF for tech companies (Square is not even that bad in that sense).
But if you're trying to value the company for your own investing purpose, I think it's a completely different subject matter.
Vero nesciunt voluptas labore sunt. Non est dolores error dolores. Fugiat reprehenderit est consectetur reprehenderit vitae. Illo et quaerat fugiat voluptatem.
Aspernatur eos nulla voluptatem esse neque architecto. Rem qui et et possimus sunt dolorum.
Corrupti tempore animi perferendis fugit quaerat doloribus. Perferendis aut sed repudiandae sint. Consectetur nobis aperiam ipsam id. Aut officia eaque in reprehenderit incidunt molestiae ut. Itaque eum omnis sequi dolorem rerum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...