valuation

In my negotiation class at Stanford, we ran an exercise where we bargained contracts with one supplier, two suppliers, three suppliers, etc. The contracts were all different and randomized, so both sides didn’t know what each wanted and valued. However, one thing quickly became clear — even with just two suppliers, the probability of getting a good deal skyrocketed compared to dealing with just one. The more competition, the better for a customer.

That’s common sense of course, but it was illuminating to see it work first hand.

That’s why I have doubts about Uber becoming the next Google even with its amazing revenue growth. You may have heard it’s trying to raise $1 billion at a $17 billion valuation.

It’s impossible to determine Uber’s fair value without concrete numbers, but I do know this: Uber will face intense competition and struggle against it.

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Microsoft is acquiring Minecraft maker Mojang for $2.5 billion. I’ve got mixed feelings about the transaction.

The strategic benefits are questionable and financially, Minecraft is worth maybe $1.8 billion — a valuation which assumes a sequel is as commercially successful as the original, and which assumes the intellectual property rights founder Markus Persson took out of Mojang is part of the transaction.

A $1.8 billion valuation leaves $700 million that new revenue streams like additional merchandising, a successful movie, etc. are unlikely to cover.

The best possible explanation might be that Microsoft is using its foreign cash reserves to pay for the acquisition — money that would be difficult for Microsoft to use domestically for tax reasons.

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