Some private companies that met venture criteria (fast growth, etc.) were valued as if they were technology shops, and when they went public investors decided that they were more tech-enabled than anything.
A simpler way of thinking about the point is to say that technology companies have higher quality revenue than other companies.
To illustrate the point that gross margins (a key revenue quality metric) can shift how a market views a stock, let’s examine a group of formerly-private, recently-public companies and compare their gross margins to their revenue multiples.
We’re looking for a loose connection between the two numbers; that’s to say that we expect that higher gross margins, in general, to lead to higher revenue multiples.
Today we’re leaning on some data from YCharts, who can provide quarterly gross margin metrics, and who have done the work of calculating trailing price/sales multiples.
That’s a tech-enabled business, and a good one, investors think.