alt Hacker News> Two-Stage Discounted Cash Flow (DCF) model. It is the gold standard for valuing a high-growth company like SpaceX.
I don't know if it's true that DCF is the "gold standard" for valuing high growth companies. IME it's actually quite bad -- not that there's really good ways to value them; more that DCF is much better for companies that aren't high growth.
High growth companies - especially ones run by Musk -- are intrinsically very hard to value, for reasons like:
- They sometimes - unpredictably - spawn new categories (think Starlink)
- There are too many variables to be able to reliably predict future cash flows (compared to say, an oil company, where future cash flows are largely dependent on oil prices, which can also be forecast with some degree of certainty)
- Risk has a much higher impact on a high growth company, how does DCF try to quantify that? Sure, you can ramp up your risk free rate like TFA suggests, but that's about as coarse a measure as it gets. Consider the risks to e.g. Tesla, how do you quantify them and their impact on its future cash flows?
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Actually all this can be captured in DCF, which incorporates continuous risks with the assumption of being a going concern.
What it does not incorporate is failure risk, which has to be brought in separately.
Pricing via relative valuation is implicitly DCF… so you can’t escape it actually. If you want to do some pie in the sky shit and pull a number out of thin air - go ahead.
But even for something like starlink we have not been given enough details to understand if it would ever be a good business, and I doubt we will.