Lyft is now valued at USD22.4 billion after a rise in trading. Shares close first day up 8.7%  after a USD2.34 billion IPO. But Lyft does not make profit, in fact they are making millions in losses. This is the same case as its predecessors Uber and Grab. Nearer to home, the giant of e-commerce in Malaysia, Lazada in fact does not make profits. They make constant losses even until its acquisition by Alibaba. So what’s the game play?

In the past, a company is worth its profits. Your company valuation is calculated by profits which is reflected in the price to earnings ratio i.e. P/E ratio. Today, more and more companies’ valuation is calculated by sales through the price-sales ratio. In simple, today you can have a fat valuation even if you don’t make money. Is this sustainable? Is this a fair valuation of a company’s worth and its future capabilities?

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