Check the post link for detailed Bill Gurley analysis, including a LinkedIn IPO perspective
With the IPO market now blown wide-open, and the media completely infatuated with frothy trades in the bubbly late stage private market, it is common to see articles that reference both “valuation” and “revenue” and suggest that there is a correlation between the two. Calculating or qualifying potential valuation using the simplistic and crude tool of a revenue multiple (also known as the price/revenue or price/sales ratio) was quite trendy back during the Internet bubble of the late 1990s. Perhaps it is not peculiar that our good friend the price/revenue ratio is back in vogue. But investors and analysts beware; this is a remarkably dangerous technique, because all revenues are not created equal.