How to value a bitcoin business

[the founder]

I'm at a loss on how to value a bitcoin business.   

Like how would you value Mt.Gox,  or how would you value bitpay...  what's the valid way to value how much a bitcoin company is worth?

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[SgtSpike]

The value is how much someone else would be willing to purchase it for.

I'd start with a Price/Earnings approach though.  Find out how much of a P/E ratio is typical for your industry (10-20 is typical for most), then use that same ratio with your own profits.  Obviously, that doesn't tell you the full story, but it's a starting place.

[BitPay Business Solutions]

It's way too early to tell.  Think of all the dotcoms in 1995. How did you value them?

At this point, its what people are willing to pay for the business, or a percentage thereof.

[OgNasty]

2.5 times annual earnings is a good place to start.

[koin]

2.5 times annual earnings is a good place to start.

there have been many companies sold for millions that have never had earnings.

or let's use facebook ipo valuation then.  if it is $100 billion then their annual earnings to support would need to be about $40 billion.

maybe valuations include this concept known as future growth and profit expectations?

[Yankee (BitInstant)]

Profit Exceptions / Revenue / Potential.

At the end of the day, those are suggestions...its whatever someones willing to pay

[wachtwoord]

I value comabies based on a DCF model, but starting with a valuation with a cash flow yield related to the uncertainty would be a great start. So for a quite uncertain business 2.5 times yearly cash flow would give it a 40% yield on cash flow.

[Melbustus]

I value comabies based on a DCF model, but starting with a valuation with a cash flow yield related to the uncertainty would be a great start. So for a quite uncertain business 2.5 times yearly cash flow would give it a 40% yield on cash flow.

Yup. Net-present-value of expected future cash flow + current assets, same as any other business. The trick is estimating future cash flows of course!

So, take what Mt. Gox is currently earning, and their growth rate to date, modify according to your own subjective assessment of how the bitcoin market will shape up over time, and do the math. The range will probably between about $0 and $500,000,000,000. That helps, right?

Bottom line: it's hard enough valuing traditional businesses with relatively stable cash flows. With bitcoin, there's far too much subjectivity to make a good hard case as to long-term valuation, so I like wachtwoord's standard conservative 2.5x cash flow approach.

[deepceleron]

All bets are off when people are dot-com style speculation crazy. Time Warner acquired AOL in one of the most ridiculous deals ever, Ford paid less to acquire Volvo around that same time, and they had 100x more employees, revenue, and assets.

[wachtwoord]

In 2008 Microsoft offered $44.6 Billion for Yahoo, got refused and now Yahoo is attempting to sell itself for roughly half that.

Look at the valuation of Linkedin, the proposed valuation of Facebook. The list goes on (and these are all really recent examples)