part 2 of dbab report
VALUATION
Theoretical Earnings Multiple Analysis(TEMA)---It is difficult to assess
valuations of hyper-growth nascent business models. Adjusted market
capitalization-to-forward revenue multiples simply do not capture the
longer-term potential of an investment. We leverage a valuation
methodology, TEMA, that is based on applying the long-term target operating
margin of a business (i.e., the harvest stage model) to the forward 12-18
month revenue forecast to come up with a theoretical, fully-taxed forward
earnings multiple. We then apply a more traditional P:E to growth
assumption to arrive at a target valuation. Using TEMA we can uncover the
true earnings power of a business while it is still in its invest and scale
stage of development without taking our models out five years and without
making broad assumptions about the target discount rate that the market
will demand.
Stock Momentum Continues--Minimal Room For Fundamental Valuation Accretion
We highlight that HotJobs.com is currently trading at a well deserved
premium to TMP Worldwide and Career Builder. HotJobs.com is valued at a
2000 theoretical P/E-to-growth rate multiple of 1.4x and 2000 revenue
multiple of 23x. TMP and Career Builder are both currently trading at a
2000 theoretical P/E-to-growth rate multiple of 0.8x (a 43% discount to
HotJobs).
We note that with the recent stock excitement, ALL target valuations have
become more theoretical than in most other Internet stocks. As opposed to
attempting DCF-based valuations which must rely on arbitrarily low cost of
capital assumptions to make any sense in this environment, we simply note
that the stock is likely to go higher as more HotJobs.com job seekers
become investors (i.e., driving continued retail stock demand). We fully
expect HotJobs.com to trade up on positive news, but the recent
appreciation in stock price leaves little room for fundamental valuation
upside, in our opinion.
As such, we believe that HotJobs.com could trade with a 2000 theoretical
P/E-to-growth rate multiple comparable to other Internet leaders. These
companies, like HotJobs.com, represent pure-play investment opportunities
in attractive Internet sectors. These pure-play Internet leaders are
currently trading at an average 2000 theoretical P/E-to-growth rate
multiple of 2.4x. We feel that HotJobs.com stock could trade at a 2000
theoretical P/E-to-growth rate multiple of 1.9x. This leads us to a 12
month price target of $40. If we assume that HotJobs.com can deliver on
the upside we discussed above, it would earn, on a theoretical, fully-taxed
basis (assuming a 27% long-term operating margin and a 39% tax-rate),
roughly $8 million or $0.27/share in 2000. Our $40 target price would
represent a 148x 2000 P/E multiple. |
