Someone please explain how exactly valuation of a company is done. Curious!
I mean if I give you revenue data, Adjusted EBITDA , debt, management detail, industry trend, profit margin, discounted cash flow, expansion opportunities, macro economics data ; will you be able to gauge market capitalization of that particular company?
I truely feel Indian stock market is running on sentiments with no correlation with fundamentals whatsoever....
Couple of things:
- People are baking a lot more growth for Zomato than they are for Meituan.
- Valuation typically is done with a sum of the parts (SOTP) approach. Building projections for the next couple of years for each business unit, and then imagining how it's EBITDA, revenue scale, growth would be at that point of time (lots of assumptions there)
- Also, might be that China markets have been much more conservative this year. I am not sure though.
I do agree though, that's too much of a disparity in valuation, and I imagine the truth is closer to Meituan's multiples. The moment Zomato stops showing growth and improving EBITDA QoQ, they will be hit.
Valuation in itself is a very wide topic, can’t be taught in a post. You need to know many other things before arriving at calculations.
You can try hearing ‘guru’ of valuations, he’s commonly referred in top B-schools :
What's the source? I can see four different numeric errors in this stupid slide.
Valuation of a company is done by people in excel.
The price of its stock (or shares, as in a share of its ownership), that's a whole different ball game. We mere mortals can't determine that. It's the market, billions of people like us, collectively determining how much a company is worth. All you can do after that is opine if it's worth correctly (more or less).
John Keynes, the Nobel prize winning economist said - The market can remain irrational longer than you can remain solvent.
Ben Graham said, In short run the market is a voting machine. In long run, it is a weighing machine.
Right now Zomato is Miss Universe. All we have to see if if it is worth it's weight in gold or brass
Market capitalisation is the most useless number imo. All that really matters is revenue and profit margins.
Valuation only comes from what someone is actually willing to pay for a stake in the company. Everything else is theoretical until then and even after that.
Companies can and do go bust despite the best teams and investors. Stock market and startup ecosystem is not immune to any of it.
The market can remain irrational for as long as it likes, even if it's disconnected from ground reality, simply because it can afford to. There's enough money floating in the system.