The article compares DB Market Cap to Snapchat's "valuation" which is based on the terms of its latest funding round. Snapchat doesn't have an Enterprise Value because it's not a public company, so the value of its equity is currently unknown.
As I said before the DB/Snapchat comparison is apples to oranges when you compare balance sheets, but both metrics (market cap, "valuation") are decent proxies for the magnitude and direction of the "true" value of the company.
Market cap is not a decent proxy of the magnitude of the value of the company.
EV in it's simplest form is Mkt Cap less Cash plus Debt. Just b/c a company isn't public doesn't mean the value of the equity is unknown.
If you buy the equity of a $100M company that has $90M in Net cash then you really are only paying $10M for it. Likewise, if the company had $1B in Net debt then you are paying $1.1B for it. Theoretically, DB could issue $10B of debt and buyback $10B of equity tomorrow and that reduces their mkt cap dramatically (their regulators wouldn't be too happy about it, though).
My point is that Banks use leverage so mkt cap is NOT a decent proxy of the value of the bank. When you compare valuation of 2 companies using Market Cap for 1 or the other (or both) is VERY misleading, especially when you have one that has a business model that uses leverage.
The real question: what does Snapchat's equity look like?
You practically need a PhD in finance to value these things, with all the preferences, participation multiples, board seats，drag-along and pro rata rights, etc attached to these shares...
It's the value of the equity (shares); market cap completely ignores debt.
Market cap is a good way to think about what the total value of a company's stock is, but a leveraged (indebted) company may have some of its "company value" "owned" by bondholders as well. EV is the total value, whereas MC is just the shareholders' part.
I feel like this shouldn't be a dumb question, but here it goes:
So, how come people are purchasing equity without paying any attention to debt?
I understand how different classes of shares may be equivalent in scenarios where a company is successful, but very different if it is failing. I also understand that the market has established a price for 0.01% of a company, and not necessarily a price for a much larger share.
Ha, I wonder what the students in that class thought when the instructors were "too dumb" to teach the consensus understanding in corporate finance.
That said, on Hacker News, subjects like company valuations seem to be discussed in terms that are more consistent with economics than what you typically hear from students of finance.
As I said before the DB/Snapchat comparison is apples to oranges when you compare balance sheets, but both metrics (market cap, "valuation") are decent proxies for the magnitude and direction of the "true" value of the company.