The valuation is way off. It is nowhere near 160 million. At the very most multiplying their profits by ten would take it to $10 million. Raising capital doesn't count as sales or gross profit, so it isn't really something to be factored into the valuation.
Let's compare Bitpay with Ebay. For Ebay, the operating profits are near $2.85 billion. Its market cap is 65.84 billion. The P/E ratio is more than 23. Now look at Bitpay. The business is growing at a rapid pace, and profits are expected to touch $10 million per year by the end of 2014. So, I think that a valuation of $160 million is fair.
Where did you get their profits? They've reported more than 1m in daily revenue processing, say it's 1.35m per day that's 500m per year.
Their most expensive processing option is 1%. Their cheapest is 0.01% (pay 1$ or $10 a day to process $10k or $100k respectively).
Let's be generous and say they average 0.80%. That means they take $4m in revenue a year. How much of that is profit? Well, Amazon has 0.35% profit margins in 2013, for example. Who knows, but I'd say 10% would be very generous. So let's say 10%. That means they take 0.4m in profit.
Or look at something else, their team. They have about 35 employees and they're a software company in a competitive space. Software engineers easily make 100k, for Silicon Valley often 200k. And that's just salary. For every employee you then pay various expenses like taxes, healthcare, meal plans, software/hardware, office space, training etc etc. To say the average cost per employee is $100k would again be pretty generous for a typical software company. So that puts their employee costs at 3.5m already and we haven't even begun looking at their cost of liquidating bitcoin, making bank transfers to merchants or any of the server infrastructure they're built on.
So 10m annual profits for 2014 I think is a complete joke. But that doesn't mean the valuation is wrong. I think 160m is a very normal valuation if you look at Bitpay's numbers today, their growth rate, the prospects of the market and apply a discounted cash flow model to that. Guess what, Richard Branson and Peter Thiel have done valuations before.
