How is an IPO valuation set? Same revenue, 22x or 30x — the book-building step that moves $500 billion
In an initial public offering, the company and its underwriters first estimate value with methods such as revenue or earnings multiples and set an indicative price range, then collect orders from institutional investors in a book-building process, and the final offer price is set from that demand. In the end investors decide. For example, the annualized third-quarter revenue of Anthropic, about $67.2 billion, is worth about $2 trillion at 30 times sales and about $1.5 trillion at 22 times
The three lines
- Steps — valuation and price range, then book-building with institutions, then final price and listing
- Methods — P/E when profitable; price-to-sales for fast-growing loss-makers; peer comparisons
- Drivers — growth rate, market mood, deal size; one multiple can move hundreds of billions
Key questions
- How is IPO price determined
- **A price range is set, institutional orders are collected (book-building), and the final price follows demand.** | Step | What happens | Who | |---|---|---| | 1. Valuation | Peer multiples, cash-flow models | Company, underwriters | | 2. Price range | Indicative range published | Company, underwriters | | 3. Roadshow | Management pitches investors | Executives | | 4. Book-building | Orders by price and quantity | Institutions | | 5. Pricing | Final price from order book | Company, underwriters | | 6. Allocation, listing | Shares allocated; trading starts | Exchange |
- P/E vs price to sales ratio
- **P/E compares value with profit; P/S compares value with revenue.** | Metric | Formula | Typical use | |---|---|---| | P/E | Value ÷ net income | Steadily profitable companies | | P/S | Value ÷ revenue | Fast-growing companies with small or no profits | | EV/EBITDA | (Value + net debt) ÷ EBITDA | Capital-heavy comparisons |
- Anthropic valuation revenue multiple
- **Based on Q3 revenue of $16.8B annualized to $67.2B.** | Valuation | Sales multiple | |---|---| | $2 trillion | about 29.8x | | $1.5 trillion | about 22.3x | | Gap | about 7.5x, or $500B |
- IPO priced above or below range meaning
- **The range is the company's indicative band; where the final price lands signals demand.** | Outcome | Meaning | |---|---| | Above range | Very strong demand | | Within range | Expected demand | | Below range | Weak demand; deal may shrink or be postponed |
An IPO valuation looks like something the company sets, but the final word belongs to investors' orders. The company and its underwriting banks first propose a price range — "this is what we think we are worth." Then they ask institutional investors how many shares they would buy at which prices. That process is called book-building. Heavy demand pushes the price up; weak demand pulls it down.
Anthropic offered a live example this week. Ahead of its planned November listing, reports said investors had moved from discussing a valuation of about $2 trillion to about $1.5 trillion. The revenue figures did not change, yet $500 billion moved. This explainer walks through how that number is set.
1. The steps to a listing
| Step | What happens | Who | Key output |
|---|---|---|---|
| 1. Preparation | Audits, governance clean-up | Company | Audited financials |
| 2. Registration | Business, finances and risks disclosed | Company, underwriters | S-1 in the US; equivalent filings elsewhere |
| 3. Valuation | Peer multiples, cash-flow models | Underwriters | Indicative price range |
| 4. Roadshow | Management meets investors | Company | Investor feedback |
| 5. Book-building | Orders taken by price and quantity | Institutions | The order book |
| 6. Pricing | Final price set from the book | Company, underwriters | Offer price |
| 7. Allocation and listing | Shares allocated; trading begins | Exchange | First-day opening price |
Markets differ in the details. In South Korea, retail subscription is a separate step after institutional book-building. In the US most shares go to institutions, and individuals typically buy after trading starts. Anthropic's prospectus details were reported in September and it held an investor day on October 14; the figures now circulating sit between steps 4 and 5.
2. Three ways to estimate value
| Method | Calculation | Strength | Weakness | Fits |
|---|---|---|---|---|
| Relative valuation (multiples) | Peer multiple × company metric | Simple; reflects market prices | Results swing with the choice of peers | Most companies |
| P/E | Value ÷ net income | Intuitive | Useless for loss-makers | Steady earners |
| Price-to-sales (P/S) | Value ÷ revenue | Works even with losses | Ignores profitability | Fast-growing loss-makers (AI, biotech) |
| Discounted cash flow (DCF) | Future cash flows discounted to today | Theoretically precise | A few assumptions swing the result | Predictable businesses |
AI companies are mostly discussed in price-to-sales terms because profits are small or volatile. Anthropic said it was profitable on an adjusted basis in the third quarter, but it lost $42 billion in 2025 — hard to value on earnings.
3. Working the Anthropic numbers — one multiple, $500 billion
| Basis | Value |
|---|---|
| Q3 revenue | $16.8B |
| Annualized (x4) | $67.2B |
| P/S at $2 trillion | about 29.8x |
| P/S at $1.5 trillion | about 22.3x |
Whether investors pay 30 times or 22 times the same revenue decides $500 billion. What sets the multiple is belief about how fast revenue will keep growing. Anthropic's revenue more than doubled in the second quarter, then grew 45% in the third. As growth slowed, investors started quoting lower multiples.
| Raises the multiple | Lowers the multiple |
|---|---|
| Fast, steady revenue growth | Signs of slowing growth |
| Turning profitable; positive cash flow | Large spending commitments (Anthropic: $518B+ over a decade) |
| Buoyant markets | Sector sell-offs (AI and chip stocks this week) |
| Small offering (scarcity) | Large offering |
Market mood is outside the company's control. The same week, Korea's KOSPI fell more than 14% and bonds of AI data-center operator CoreWeave traded near 15% yields — both pulling down the multiples investors were willing to quote.
4. After the price is set — FAQ
| Question | Answer |
|---|---|
| Is a low offer price bad for the company? | It raises less money for the same shares, but leaves room for gains that build investor trust |
| What if shares soar on day one? | A sign the IPO was underpriced — "money left on the table" |
| What if pricing falls below the range? | Weak demand; the deal may be cut or delayed |
| What about existing shareholders? | Backers such as Amazon and Alphabet, which book gains on their stakes, may see marks change with the IPO price |
- Country differences: Price-band limits, retail allocation and lock-ups vary by market.
- Annualizing: The multiples here simply quadruple one quarter. Real investors use forward forecasts.
- Anthropic figures: Both $1.5 trillion and $2 trillion are reported discussion. The offer price comes in November.