You're familiar with P/E ratio, an important number which compares a company's stock price to its profits.

But because many software companies are unprofitable and have negative P/E ratios, investors often compare their stock prices to their REVENUE instead 🤔

Revenue Multiple = a company’s market cap ➗ its total revenue in the last year, or TTM revenue.

Fastly is a software company that did ~$500M in revenue in the last year, and has a market cap of about $2.5 billion.

So their revenue multiple is $2.5B ➗ $500M = 5x

Some investors may also calculate a Revenue Multiple based on the company’s projected revenue for the next 12 months, or NTM revenue 🔭

When looking at revenue multiples online, try to discern whether it’s using TTM or NTM revenue – these can drive totally different results.

You may notice that the Revenue Multiple sounds similar to Price-to-Sales Ratio...

That’s because they’re actually just 2 different terms for the same number 👯

Different companies can have vastly different revenue multiples, just like how different stocks have vastly different P/E ratios.

In the next lesson, we’ll explore some of the key things that influence software revenue multiples, to help you become better at evaluating software companies 😎