Are they currently prioritising revenues and profitability?
You could have real estate in the heart of Manhattan that you make $0 on, but that doesn't make it worthless because of the potential of that real estate.
We know highly trafficked websites (and apps) can make billions selling ads. My guess is that investors saw value in the virtual real estate of Substack so that $650m might not be as unreasonable as it seems on the surface.
Valuations are based on future performance, not current performance. If they're going to do $100m in revenue this year then the valuation is perfectly reasonable.
But I'm just guessing. It might be as unreasonable as you suggest. I'm just saying there can be cases when that kind of valuation would make sense if the potential for higher future revenues / earnings exist.
> Valuations are based on future performance, not current performance.
In the public markets, maybe. In the VC markets, valuation is more linked to how much VCs like 'the idea' as opposed to whether they think it could succeed .
Loads of companies make great money selling ads. Sure, most don't make billions in profits, but even apps like Snapchat are able to do billions in annual revenues every year selling ads. And many companies are able to make tens or hundreds of millions selling ads.
Also I was just using ads as example of how digital real estate can be monetised. I'm not a Substack user so I might be mistaken, but I believe most of their revenue comes from their subscription model. The point I was making was just that if you create something that millions of people use whether or not you're aggressively monetising it today, there is still some theoretical value that you can assign to those eyeballs and that engagement.
Snap made a little over $1 billion in revenue last quarter and had a net income of -$360 million. Thads yet another fallacy of the startup mentality (yes I know snap is public). Judging “success” by revenue and not profit. Anyone can sell dollar bills for 95 cents.
Also see Yahoo. Yahoo was one of the most trafficked websites for almost two decades and couldn’t really profit from it after the dot com bust.
You could have real estate in the heart of Manhattan that you make $0 on, but that doesn't make it worthless because of the potential of that real estate.
We know highly trafficked websites (and apps) can make billions selling ads. My guess is that investors saw value in the virtual real estate of Substack so that $650m might not be as unreasonable as it seems on the surface.
Valuations are based on future performance, not current performance. If they're going to do $100m in revenue this year then the valuation is perfectly reasonable.
But I'm just guessing. It might be as unreasonable as you suggest. I'm just saying there can be cases when that kind of valuation would make sense if the potential for higher future revenues / earnings exist.