How to value companies when you're a cokehead
Source Financial TimesValuations for cokeheads:
Now, TAM is de rigueur in any venture capitalist’s slide deck or IPO prospectus. Its usefulness is another matter. Uber touted a $12.3tn TAM in its 2019 listing; its annual revenue today is less than $60bn. WeWork’s $3tn addressable market of office properties didn’t save it from bankruptcy. But for a company like Anthropic, TAM is as good a place as anywhere to start.
Investors aren’t groping totally in the dark, thanks to SpaceX. Elon Musk’s company, which makes the Grok chatbot as well as owning social network X, claimed in its May listing documents that “enterprise apps”, which would include its products and services backed by AI, make up a market worth $22.7tn — a little more than the entire annual revenue of the S&P 500.
With such a large theoretical market to play for, a little goes a long way. Even the mighty Microsoft’s revenue is less than 2 per cent of what Musk sees as the industry’s overall opportunity. If Anthropic can muster 3 per cent, it would stand to make nearly $700bn of revenue. Pop that on a multiple of 10 times and discount it back assuming it takes three years to achieve, and out comes a valuation of $4.5tn.
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