Ann: Landmark Acquisition to Form New Gaming Powerhouse, page-431

In reply to ASA12627 and his question regarding the 30 times revenue multiple:

If you look at the investor presentation the company released post the LemonSky acquisition, there's a slide which compared the new entity with PLY. The ICI/Lemonsky combined revenue for the year is estimated at $16m with positive earnings of $3.92m from memory, and is valued at about $130m, whereas PLY had $10m of revenue, is making a loss, and yet is valued at about $300m. It would appear if PLY is earning $10m and is valued at $300m, they are being valued at 30 x annual revenue. So based on that revenue multiple, ICI should be valued at about $480m.

Now, whether you agree they should be valued at such a high revenue multiple is a different matter, but the fact is, today's greedy markets tend to value tech firms based on future growth potential and not on current or 12-mth forward earnings (EBITDA), which is the more conservative/traditional way to value companies.

e.g. the revenue-based valuation method versus the EBIT (earnings) multiple method is at the heart of the ongoing huge debate about what Afterpay is worth. The old-school stock analysts think it's way overvalued because it hasn't even made a profit yet, and shouldn't be anywhere near its $30B-plus valuation. Hence why some analysts value it at $35-40 a share (based on what its future earnings might be, when it breaks its duck). But the new method of valuing a growth company by revenue multiples (and I believe APT was being valued at 35-40 times its forward revenue at one point) has it at $120-140 a share, which is the basis on which it's been trading! Some people believe this latter methodology is way too optimistic and will be found out eventually, especially when/if interest rates rise, which is expected to dampen the future earnings potential of growth stocks in particular.