Hi Bob. Here's another article regarding internet valuations. I thought the comments regarding the business model of AMZN were interesting. To me, this suggests that an entity like TSIG (once a few deals close) can compete with the best of the CURRENT INTERNET STARS. As Slaffe (Steve) would say, TSIG built a better mouse trap. When it becomes known that TSIG is an internet stock (with a teleservices advantage) that actually MAKES MONEY... Watch Out !!!
Regards,
Phil
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Top Stories: How to Value an Internet Company?
By George Mannes
Staff Reporter
11/22/98 12:00 PM ET
What's an Internet company worth?
A fair question to ask. But don't expect a clear answer. That
was the takeaway from a blue-ribbon lineup of analysts and
financiers gathered last week by the MIT Enterprise Forum of New York City and the Sloan Club of New York. Assembled for a panel discussion on valuing public and private technology companies, luminaries such as Internet and technology analysts from Merrill Lynch and investment banker Lazard Freres explained how they turned madness into method. It didn't look easy.
High-tech valuations are very tricky, explained Richard Vieira, a senior associate with Broadview International, an investment bank specializing in information technology mergers and acquisitions. After all, how do you value a company with zero revenue, negative earnings, extraordinarily high growth, zero fixed assets, critical intellectual property assets and subject to major technological shifts?
It's never-never land.
Internet analyst Jonathan Cohen of Merrill Lynch offered his discounted cash flow model -- the present value of future money generated by a company. But when that company isn't making any money now, that makes it a little harder: "Internet stocks that I cover really push that model to the absolute breaking point," Cohen said.
Cohen explained that his job has turned him into a "meta-psychologist," forcing him to interpret the thoughts and feelings of investors, not just study companies trading at a "perceived multiple to something." He has to contend with a host of strange yardsticks that people have proposed for valuing companies, such as judging operation on multiples of losses, not revenues or earnings.
Of course, on the Internet old rules don't apply: If any of the small Internet companies he covered actually made money, said Cohen, "I'd be really worried."
Alexander Pasik, director of technology equity research for Lazard Freres, offered an equation, P/E/G=sMQ, to quantify fast-growing companies. His 10-minute slot didn't give him quite enough time to fully explain the theory, but the price-to-earnings ratio (P/E) divided by the company's growth rate (G) should be constant (s), as long as you take into account the elusive but quantifiable elements of market efficiency (M) and company quality (Q).
Even if you couldn't follow the Ph.D.-fueled presentation, Pasik provided investors with a number of measures to gauge a company's quality. Look for "revenue visibility," or the reliability and predictability of revenue projections, and determine if the company has a brand name. Examine the barriers to entry for competitors and management's breadth and depth, especially in the areas of sales and marketing and research and development.
Above all look for companies that sell products online that can't be sold another way, or look for products, like research reports, that are particularly amenable to being sold online. That's a better strategy, said Pasik, than trying to replace the "look and feel" of an offline experience, like browsing in a store.
Merrill's Cohen hopes such advice would turn investors away from Web phenomenon Amazon.com (AMZN:Nasdaq). "People need books, want books," said Cohen, who has a sell rating on Amazon. "I don't think people want or need to buy Amazon.com's books." Moving into music and video "is going to give them a really excellent opportunity to lose even more money," Cohen said.
Looming over the discussion was the issue of just when the current Internet mania would collapse, bringing Net stocks down with it.
Pasik suggested it would be here until the next mania kicks in. "Because there always has to be a mania going on," he said.
Cohen predicted five or 10 years, though he pointed out that Internet investors have already cycled through some submanias, like the rise and fall in popularity of companies like Netscape (NSCP:Nasdaq) and Spyglass (SPYG:Nasdaq). Assuming it will take 30 years for the Internet to permeate the economy, it will be about half that time "before the hype boils off," Cohen said.
But panel co-moderator Bryan Finkel, managing director of Technology Venture Management, took a shorter view, predicting a major correction early next year. If holiday season Internet commerce sales don't live up to expectations, the industry will suffer, he said. If the season is great, people will decide it can't match that performance in the coming months. "Either way, I think it would head down," he said.
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