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Technology Stocks : AUTOHOME, Inc -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (1390)	2/19/1998 1:42:00 PM
From: Roger Bass	Read Replies (1) \| Respond to of 29970

First, let me say I really appreciate your reply. I think debate on these kind of quantified approaches to valuation is essential to getting an idea of what a company is worth, as opposed to an unquantified expectation that the price should go up from where it is now. In my post I explicitly said "These are not to say 'this is what it's worth', but rather 'this is what you might believe that would correspond to the current price', and to think, well do I believe it will be better than that, and when." There is no inconsistency here between what I wrote and your discussion of what the potential market size is (an issue I didn't really address at all before). 'Who says the yield will be what I say' - well, not even me, in fact. The key assumptions about yield per customer etc are numbers I thought up after some thought, but not very much. The idea was just to put together one scenario for value, and use that as are yardstick against which to measure other different expectations about what the company will in fact do. I have enjoyed our discussions so far on this thread, and greatly respect your technical appreciation of this business, which clearly exceeds mine. In this instance though, you might consider reciprocating as regards valuation techniques. I did once value companies as a job: though it is an inexact process, there are some techniques that are useful, and others that are, well, flawed. Now, I'm not sure I fully understand your reasoning in the valuation, but here are some comments as I read it: - you talk about applying a p/e of 50x on your $5 number.. so I presume that means the $5 is earnings - this is based though on 10M customers x $1000 / year - the $1000 number though (at least in my calculation) is a VALUE per customer, based on net earnings of $100 (or $133 in the other scenario) - So net earnings on 10M would be $1bn, not $10bn - dividing $1bn by 200M does actually give your $5 per share (I did see something about 118.5M shares, is this right ?) so this would actually look better, at $8.40 / share - applying a 50x multiple, would give $420/share, BUT that's based on 10M customers, and we're not there today. Here the discounting is even more controversial, at 30% gives 34%, 10% gives 73% or.. (I'll leave that whole issue for now) - $143 or $307 / share So we're not miles apart. The key issue here is how confident one is that they will reach a given number of users (say 10M) in a certain time. In case anyone is thinking these numbers make it look like a steal, note that even the $100 earnings number has some fairly heroic assumptions. Only $10 (in my rough model) of this is coming from the basic @Home service - this assumes a very large contribution from businesses that don't, or barely, exist today - a fairly heroic assumption. If you just looked at that part of the value you'd get... perhaps about $30/share. BTW, the logic for using 50x p/e is somewhat spurious. There is this idea that pe = growth is a 'fair' number. Obviously more growth correlates with higher value, but the math here is wrong. The key determinant is how long a super-normal growth rate can be sustained for, before reverting to a 'normal' economic growth rate. And in any case, over the next few years, ATHM had better do a whole lot better than 50% a year. The quarterly doubling I mentioned would be 1500% per year, though it seems pretty unrealistic to see that being sustained. Getting to 10M by end 1999 is an only slightly more conservative target, requiring 1300% annual growth. But the p/e would relate to growth going forward from there, so 50x is perhaps not outrageous giving the opportunity to grow further. There's lots of scope here for discussing the different parameters of such a valuation, but I for one am quite happy to have the discussion on that level rather than just 'wow, it's going to be really big'. In particular, question of how much value @Home can get from international markets is an interesting one, but this post is long enough for now. Regards, Roger.

To: ahhaha who wrote (1390)	2/19/1998 5:38:00 PM
From: Hiram Walker	Read Replies (1) \| Respond to of 29970

Ahaha, I think Milo is a little off on LMDS,it does not need line of site per se,as it bounces off surfaces very well. Also the bandwidth and speed are there,and there is no need for infrastructure. The question is how will those who acquire the spectrum utilize it,and what overlap is required in high rain areas. I still think the battle is not over,and that HFC and LMDS will fit nicely together,especially in international markets. Hiram