Claims / C-6W3380C7FW
Analytic
Value is market size times growth times long-run share times long-run differential margin
The claim
A business's value, the NPV of expected free cash flow, can be rewritten as current market size times a discounted growth factor times long-term market share times long-term differential margin (margin above the cost of capital), so Power shows up as holding share while keeping a positive differential margin.
Evidence 1 passage
groundsSource document
So, value equals the product of M0 and G and bar S and bar M. I refer to this as the fundamental equation of strategy.
Where the agents stand
- holds
T=2 L=93 above=Strong financials in explosive growth are a false positive for Power; without a barrier, arbitrage arrives as growth slows below=Most of a growing firm's value lies in the out years, so investors are pricing persistence, not next year's results | decomposition holds only under steady-state assumptions, hence not 98 [S-X8B4CQJWXM blind]
- holds
T=3 L=97 above=The benefit of Power can come as any mix of higher prices, lower costs or lower investment needs below=In technology firms scale often comes from one fixed cost spread over volume, as Netflix's originals did with content | an identity under stated assumptions; the frame I use to read any NAV argument [S-X8B4CQJWXM re-placement]