Re: How to value a web site

From: Robert J. Woodhead (AnimEigo) <trebor_at_animeigo.com>
Date: Tue, 2 Feb 1999 06:02:09 -0600 (CST)

"RAY TAYLOR" <TAYLOR_at_NMCADPLAN.COM> WROTE:
> Working out the value of Yahoo is very easy indeed. You only
> have to check the price the shares are being sold at.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Umm, that gives you the VALUATION of the company, not the
VALUE. For internet companies, the VALUATION = N * VALUE,
where N is often an obscenely large number.

It is amusing to look at some internet stocks and do the
calculations on how much they have to grow in order to
justify a "reasonably absurd" PE of, say, 30:1.

As an exercise, let's look at eBay, a company that is,
rather heretically, actually making money (the worst thing a
net stock can do is make money, of course).

eBay (which I use and love) has a current market cap of 11.2
billion dollars as of this typing. By the time you read
this, it may be up or down a billion or two.

If it had a PE of 30 or so (high!), it would have to
generate profits of 300 million or so (I'll round in their
favor). Currently, it's PE is something around 4134.

When someone sells something on eBay, eBay gets between 2.5%
and 5% of the proceeds. Let's assume they average 4%, and
that other income sources such as advertising cover all
their costs, including advertising, so that all of that 4%
is profit. And considering that their profit right now is
5% of revenues, I'm being hugely generous.

This means that eBay must auction 300,000,000.00 / 0.04 =
7.5 billion dollars worth of goods in order to make that
$300 million. That's 7.5 million users each auctioning
$1000 a year of goods.

Even if I'm off by a factor of 10, it's a stock whose
VALUATION is much higher than the company's VALUE, and it's
one of the few internet companies out there that I think is
going to be profitable in the long term.


Robert J. Woodhead
-------------------------------------------------------------------------
If we can't ensure that all our computers are Y2K-compliant, then perhaps
we ought to try to ensure that our local community is Y2K-complaisant! It
may be the second-order "Y2K-phobia" that causes most of the damage.


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Received on Tue Feb 02 1999 - 06:50:08 CST