Generally speaking, profitable tech companies are valued much like any other company in the same industry. They are evaluated based on pub comps, M&A comps and using valuation methods such as DCFs or LBO models. The main difference is that early stage, "hot" technology companies often have high multiples due to their perceived trajectory. This is especially true for those that are able to tap into human needs in ways that other technology can't. Examples would include the ability to listen to music/videos/pictures anytime, anywhere without having a physical device to use them with or the ease of communication through messaging applications.
Normally when valuing a business, the procedure is to calculate the company's SDE or EBITDA and then multiply it by an appropriate multiple. This is the general procedure for evaluating most business, but the process gets more complicated when evaluating technology, software, or online businesses. The most common method for valuing such companies is by a revenue multiple, with specific parameters when assessing SaaS (Software as a Service) technology companies.
The discounted cash flow ("DCF") valuation is considered the most precise, but can be very difficult to perform for tech startups with unproven business models and negative earnings in their early stages. Even slight changes in key assumptions such as revenue growth rates or terminal profit growth rates can significantly impact the final valuation. As such, many investors prefer to use simpler multiples based valuation approaches when assessing tech companies.
