"Might be worth $200-$300 bn eventually" doesn't justify "worth $100 bn now" unless you believe that either:
1. That outcome is highly probable
2. That outcome will occur very quickly (within 2-3 years.)
Let's say we believe the low end of that ($200bn, or 100% growth.) If we believe that will happen in 3 years, that's about 25% growth in market value annually (and a much larger rate of growth in revenues / profits to produce that, since they'll need about a 10X change to balance the multiple compression that will occur as they grow.)
The potential for 25% annual returns isn't anything to sneeze at. But that's what we're saying the "upside" scenario is... 25% stock returns with a company achieving something like 200% growth in profits annually (which seems highly unlikely.) The numbers are pretty unforgiving.
Thanks for the reply -- the valuation method I mentioned was obviously too crude, so I was hoping someone would call me out on it. I don't know much about finance but I'm actively trying to teach myself. Anyway, it would be good to find a more reliable way to quantify a company's long-term, potentially risky growth opportunities.
There's a million models, but there isn't going to be one that's universally correct. The problem is that the inputs are generally too subjective and too noisy in any model that includes future earnings (there are some conservative ones that are based only only on past performance, but they will never match with an IPO valuation.)
A great place to start is this book: Value Investing: From Graham to Buffett and Beyond ... by Bruce C. N. Greenwald ... most folks will say it's too conservative but it's a starting place.
Let's say we believe the low end of that ($200bn, or 100% growth.) If we believe that will happen in 3 years, that's about 25% growth in market value annually (and a much larger rate of growth in revenues / profits to produce that, since they'll need about a 10X change to balance the multiple compression that will occur as they grow.)
The potential for 25% annual returns isn't anything to sneeze at. But that's what we're saying the "upside" scenario is... 25% stock returns with a company achieving something like 200% growth in profits annually (which seems highly unlikely.) The numbers are pretty unforgiving.