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Technology Stocks : Internet Analysis - Discussion
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To: Chuzzlewit who wrote (212)3/10/1999 4:12:00 PM
From: dpk  Read Replies (3) of 419
 
Chuzz:

I have been a lurker on this thread as well as on the Dell thread, and have always appreciated your sane,logical and cash-flow based analysis.

While I do not have the definitive answer as to how to value Internet-based stocks, it is clear to me that whatever measures various "analysts" use, they have to ultimately be translatable to the NPV of a future stream of free cash flow. And unlike companies in mature industries with somewhat predictable FCFs, the FCFs of Internet-based companies are extremely difficult to model, given the very early stage of the internet phenomenon itself; the early stages of the business models for revenue generation through fees(subscription, membership, and usage), advertising, and other (heretofore unknown)means; and the impact of the increasing returns phenomenon on the profitability of internet-based businesses.

I have found the book "Net Gain - Expanding Markets Through Virtual Communities" by John Hagel and Arthur Armstrong to be very useful in developing my understanding of the Internet phenomenon. It was published a couple of years ago by HBS press, so it may not be the latest and greatest. But the authors (current/former McKinsey consultants) do a good job of tying valuation down to FCF. I hope it is still in print, if not I am sure a public library worth its salt ought to have it.

Let me know what you think.

Regards

dpk
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