While your post is technically correct in terms of how a DCF works, it is also emblematic of a pervasive misunderstanding within SV about how valuation works and especially how institutional investors (the people who control most of the money in the stock market) approach valuation.
Financial models, especially DCFs, are useful as a framework for comparing similar assets against each other -- whether it's two software companies or two oil refiners.
On the other hand, using DCFs as a tool to derive the "true" value of a company's equity is a mistake. Similarly, imputing truths about the drivers of a given company's DCF valuation -- e.g., g in the Gordon growth model -- based on the value of that company's equity in the financial markets is also a mistake.
The recent explosion (last 5 years or so) in private company valuations is more a function of a global thirst for yield than investor expectations that any given company will be producing free cash flow of a in year x or b in year z.
You project for as long as you can, but eventually you have use the growth model at the very end. Even before you get to that point you have project a growth model. So year 1 is 1.2A year 2 is 1.2^2A etc. So the growth rate is pretty important in creating valuation.
You're missing my point altogether. I'm aware of how DCFs work and you describe their mechanics accurately.
My point is that the drop in Twitter's stock price has nothing to do with DCFs and more broadly, that DCF models are useful (and used) primarily as a means of comparing similar companies rather than as a "true measure" of a company's value.
Financial models, especially DCFs, are useful as a framework for comparing similar assets against each other -- whether it's two software companies or two oil refiners.
On the other hand, using DCFs as a tool to derive the "true" value of a company's equity is a mistake. Similarly, imputing truths about the drivers of a given company's DCF valuation -- e.g., g in the Gordon growth model -- based on the value of that company's equity in the financial markets is also a mistake.
The recent explosion (last 5 years or so) in private company valuations is more a function of a global thirst for yield than investor expectations that any given company will be producing free cash flow of a in year x or b in year z.