No, it's not, because that isn't enough information to determine your conclusion. That's a 36x P/S ratio. Many established public companies are at or exceeding that, like Cloudflare and Crowdstrike. (those companies COULD be overvalued too, but it depends on something else)

The most important factor or metric you're missing from the equation is growth (assuming eventual profit margins are normal). It doesn't matter what today's revenue numbers are, if there is an eventual much better revenue number in the future.

This can be sustained by something like:

100% YoY growth over 5 years: 4.5b revenue at a $5b valuation?

50% YoY growth over 10 years: 8b revenue at a $5b valuation?

Looking much more like a lot of value there.

I'm not that familiar with tech company revenue growth examples but can you point to many other $5B companies (or companies already making $100M revenue) that get 50% YoY growth for 10 years? As far as revenue goes? That kind of revenue growth would put them into the top 500 companies in the US by revenue, close to eBay [0]. To me this seems very optimistic but I only known the basics about Zapier, not their future direction etc so I'm likely missing info.

[0] https://en.wikipedia.org/wiki/List_of_largest_companies_in_t...

Virtually all of the companies trading north of 30x sales are ridiculously overpriced. It’s just a bubble, don’t allow it to distort what long term values really are.

Amazon and Cisco were similarly overvalued in 2000. It took Amazon 7 years to trade back to that price. Cisco never has.

I'm going to assume, based on your outlook and name, you're a traditional value investor. I consider myself one too, and have read Margin of Safety, Buffet, and Intelligent Investor.

Companies north of 30x sales are generally overpriced, but that metric alone is still woefully inadequate to determine true NPV of future earnings. Software co's can afford higher P/S for their true value because of the unprecedentedly high margins they're able to achieve and reap as profit once operating expenses are managed. There's a reason BRK bought Snowflake. Amazon was still a great purchase in 2000 because what ultimately matters is the long term value. You can bet that you'll get more value by buying at a cheaper price later on, but that may ultimately never happen. Knowing that AMZN would be where it's at in 2021, buying it in 2000 is the right choice without 20/20 hindsight of market conditions. Same is true of high value companies like Cloudflare and Fastly. There may be interest rate increases or other reasons they become further discounted in the next 5 years. However there's more a chance that they're true value is adequately discovered while one stays on the sidelines. The margin of safety for them is great and of course we'll be free to see after a few plus years.

I also wouldn't bet on interest rates rising (or falling). Market consensus for their current price is usually pretty good and there are many reasons why interest rates are historically low and likely to remain roughly so.

Amazon stock price dropped over 90% in 18 months after March, 2000. There is no excuse for not doing basic valuation estimates, it can save you from these collapses. You can still love Amazon’s business on 2000, but not overpay for it, just as you can do same with Tesla today.

And the Fed is at zero percent. Name another period where zero percent rates ever existed, and how long did it last? When the money supply has grown 50%+ over the last year how are we avoiding inflation, and if inflation kicks up how are we avoiding higher interest rates?

Those are P/Es, not P/S.

If Zapier nets 25% after taxes, it’s valuation is 150x earnings.

And Shopify, Square and Tesla’s valuations are even more absurd.

Mentioning these 200-1000 P/E companies, as others do, is such an oddity, because there are 500 other companies with 0 earnings or negative P/E that are worse in that aspect.

To invest successfully you don’t pay a high price saying “well there are worse companies at worse prices out there”.

Valuations are always determined by the NPV of future earnings, discounted for time and cost of money. Given rising interest rates all of these valuations will get slashed substantially.

It’s a bubble, after the internet bubble it took Amazon 7 years to trade back to its bubble price. Cisco never has.

30x revenue multiples are actually not too uncommon, especially for a SaaS firm that appeals to both small & enterprise customers, is already profitable, and has a large addressable market.

Here's an article that has a frequency chart based on valuation multiples. Keep in mind that, while it's front-loaded with lower multiples, not all business models have the same potential for revenue growth: https://onstartupexits.com/how-to-value-the-exit-price-for-a...

30x revenues is a marker for an excellent short position. Revenue growth always slows and almost never justifies such ridiculous valuations.

Sure, though I was just saying these valuations aren't too uncommon. Still, in Zapier's case, they're in hockey-stick revenue growth, and accelerating. It's still a gamble, but not an unreasonable one to believe they'll ultimately justify the $5B valuation. Of course by that point they've be valued at some other ridiculously high number.

Are they in hockey stick revenue growth, or is growth slowing like it does for 90% of startups? How large is their total addressable market anyways? Seems like a super niche product.

One thing I could have been clearer on is that private valuations should be at a large discount to public valuations. You buy shares at a $5B valuation only because you believe it can IPO close to a $10B valuation, or what is the point of investing?

And a $10B valuation would crazy town.

I am using Zapier because their service was very easy to implement a webhook for what I needed at the time. However, the price is high enough that they're on my short list of vendors to move on from when I have the time to spend building my own integration (not replacing everything Zapier does, just for my use-case).

I suspect I am not their intended customer as I don't get a lot of value out of the dozens (hundreds?) of API implementations they offer. But I wonder how much of that revenue represents customers with similar plans.

I'll tell you about the first time I started using Zapier. I wanted to move some data from google spreadsheets to some other system (I don't actually recall what it was, it was 2012). I was on a team of three devs supporting a business critical application.

The options for me were:

   * bump something else to have a dev build out the integration
   * pay the monthly fee to enable a non technical person to build the integration (it was on the order of $50/month).
   * don't get the work done

Above and beyond the value of the UI and uptime managed by someone else, the fact that it could get done by a non programmer made the monthly fee very worth paying.

I think I've used it at 3 companies since, mostly on the free plan. But when I exceed the plan, I don't have any trouble pulling out the company's wallet to pay for it.

> pay the monthly fee to enable a non technical person to build the integration

I'm just curious how that went. Was a non-technical person able to learn Zapier enough to carry out the task? Were they totally non-technical, or just not a professional dev?

They were able to do what needed to be done. I'm not sure what you mean by totally non technical? They weren't developers, but knew how to use gmail and google sheets at a pretty sophisticated level.

> but knew how to use gmail and google sheets at a pretty sophisticated level.

Thanks, that's what I meant. I think someone who's is tech savvy but not a professional developer would do fine with Zapier, but my guess is that completely non-technical people (who only understand browsers, email, word processors, etc) would struggle.

When Slack IPOed, their revenue was around $500 mil and their market cap was $16 billion, IIRC. So Zapier seems pretty inline.

Slacks price was even more ridiculous. It’s lucky it was able to get acquired before this bubble bursts.

I agree that it feels pretty cray but it's inline with the market. Sector is hot, it has a trendy + efficient product-driven growth model, they're profitable, and growth looks good. There's a lot to like which gives them a revenue multiple at the high end of the market – which currently puts them right around $5B.

It’s a bubble not a sector. This ends like 2000 ended.

Zapier has mindshare, enormous depth of functionality, and an enormous potential market. Doesn't feel insane to me. I'd buy in.

And that’s worth $140m in revenues. Not enormous at all.