Growth is critically important to the valuation. I think of it like a canonball:...

jellicle · on April 20, 2012

Yes, growth is a factor... but there are only 7 billion people on Earth. Most of them aren't going to pay for Evernote - heck, most of them don't have a yearly income large enough to pay for Evernote.

The valuations are getting to the point where they only make sense if Earth had many, many more people on it. Or if you are no longer looking at the fundamentals and are only betting that there's a "greater fool" who will come along after you and take the shares off your hands for more than what you paid for them.

I would guess "greater fool" is in operation, and not any belief in value or growth.

yskchu · on April 20, 2012

I agree with your statement on valuations, however I think there's also another factor at play here

>The valuations are getting to the point where they only make sense if Earth had many, many more people on it.

The fact is, it is still very hard to gauge how much a company will succeed by.

Take the example of Friendster etc and Facebook; when Facebook started, Friendster etc were the dominant players; however, now, we all know who's the dominant player in social. At one point, they may even have had the same valuation.

My point being, if two companies in the same market are getting $1 billion valuations right now, it doesn't necessarily mean that people think the market is worth $2 billion down the track; some people are hoping one will win over the other.

Indeed, if Evernote develops some killer features and dominates it's space, it'll be a steal for $1 billion

3am · on April 20, 2012

Walmart's P/S is low because their operating margins are so low, and Walmart's P/E is actually almost the same as Google's, because valuation is a function of cash flow, not sales.

What kind of addressable market do you see for Evernote, and what sort of margins do you see them making over the long term? I just don't see an online note taking app being so difficult to reproduce, so I don't know if they have pricing power to generate the cash necessary to support a $1B valuation. Particular after you consider execution risk, and then leaving room for this round of investors to make an attractive return.