Glossary·Written by a CPA
TAM
Also called: Total addressable market
An estimate of the total yearly revenue available if a company captured an entire market for its product.
TAM stands for total addressable market, which basically just means the size of the whole pie if every possible customer bought the product. Companies love putting a big TAM number in investor presentations.
It's a useful way to think about how much room a company has to grow. But it's an estimate, usually built by the company or a consulting firm, and there's a lot of freedom in how the market gets defined.
For you, the better question is how much of that market the company can realistically win, and at what profit. A huge TAM doesn't help much if the competition is fierce or the customers won't pay.
Example. As an example, say there are 10 million small businesses that could use a piece of software that costs $1,000 a year. The TAM would be 10 million times $1,000, which is $10 billion a year. If the company has 100,000 customers, it has 100,000 divided by 10 million, which is 1% of that market.
The catch. TAM figures often get bigger with each new investor presentation, sometimes because the definition got stretched rather than the market actually grew.
Where I talk about it
- SNOW Stock (42% DECLINE)- Why Warren Buffet LOVES Snowflake Stock at 6:18
- Intel Stock Fell 20% After Earnings Despite 78% AI Growth (INTC) at 1:16
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This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.