According to the Financial Times’ Jamie Powell, more and more investment theses are forecasting massive total addressable markets (TAMs).
In fact, research from data firm Sentio shows that “September saw a record number of companies using the term [TAM] in their pre-IPO S1 filings.”
TAM is going HAM
Per Powell, here are some of the notable TAM projections:
- Uber claims that the ride-sharing industry is a $5.7T opportunity
- Virgin Galactic — Richard Branson’s baby — forecasts the commercial space travel industry is worth $1.5T.
The definition of TAM is changing, too. Typically, TAM refers to the revenue opportunity of an industry.
In a new spin, Bank of America recently pegged the TAM for Russia’s finance industry at $2.2T, including “retail wealth.” The problem is that the actual revenue opportunity for managing retail wealth is a small % of the total dollar amount. 🤷
Big TAMs are a way to justify lofty valuations
The classic move being: “If we can just capture X% of this huge $Y market, we’ll all be richer than MacKenzie Scott.”
Professional investors (including the Shark Tank crew) have an adverse reaction to the phrase, which comes off as 1) wildly optimistic; and 2) demonstrates a crude understanding of one’s actual business prospects.
With equities continuing to reach lofty heights, though, the hyperbolic nature of these TAM projections are kinda working.
