The first step to identifying the next $100 billion software company is figuring out the fundamentals needed to support such a valuation. On average, investors will pay a multiple of 18 times price-to-earnings to own stock in a large, well-positioned software company. That means the company needs to yield about $6 billion in net income. Adding back taxes, at an average 25% tax rate, yields $7.5 billion in operating income. Software names have pretty good operating margins—around 30% on average at scale—so the magic number is around $25 billion in annual revenue. Here’s a simple equation with round figures:

from Forbes – Tech http://ift.tt/29NN1vF
via IFTTT