The Mispricing of Software Companies
Tom Tunguz
OCTOBER 4, 2020
Public software companies trade on forward revenue multiples. Investors contrast the relative value of one business by comparing the enterprise value divided by forward revenue (sum of the next 12 months' revenue) of one business to another. Ten years ago, forward multiples remained in a tight band between 5-10x. Today, they span 2-60x+. This novel dispersion provides us an opportunity to ask some interesting questions.
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