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To: Mohan Marette who wrote (3861)	3/7/1999 7:50:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

Stever Harmon's Metrics to value Internet Companies. Morning Report Tue Feb 23 Harmon's Toolbox: The Metrics For Evaluating Internet Companies By Steve Harmon Senior Investment Analyst Internet.com "Where Wall Street Meets The Web" Pundits supposedly in the know regularly decry valuations of Internet stocks. They have a well-worn lexicon handy with thumbed pages that include "bubble," "overvalued," "hype." But in 1994 when the first pundit jumped up and said the Internet was a fad and a bubble because the price-to-earnings (P/E) of AOL at that time was off the charts according to the industrial era P/E ratios I had to delve deeper into the emerging phenomenon called the Internet. What I found was I needed real tools, real metrics to evaluate really new ways of doing business. And many didn't exist. What resulted in the following five years since then has been a toolbox of metrics, some of which I had to invent, to properly evaluate these new animals called "Web" or "Internet" companies. Because this new fangled thing was unlike anything that had plopped on the planet before................ Let me open my toolbox (again, since some of you have seen this but now it's updated) and show how metrics can be applied to draw out valuations and effienciencies of being an Internet business. (If any of this helps you let me know or pass this along to a friend): Steve Harmon's Internet Valuation Metrics Market capitalization/users* A reference for comparables and peers, an indicator of overall value per reach Market cap/page views* Indicates what a basic page view is valued at by investors Market cap/ad views* Page views generating revenue rather than sitting blank Private market value What private deals go for either in merger or in bidding situation Customer acquisition cost What it costs to gain a new subscriber or buyer; valuable in evaluating ISPs, etailers, auctioneers, wholesalers, manufacturers that sell on the Web Valuation/customer acquisition cost* Useful when comparing peers to see which may be valued at a relative discount based on customer growth efficiencies Enterprise value Subtract cash and add debt to market cap to determine core value of the company; particularly useful in valuing potential takeover targets Revenue multiple (or market cap/revenue) Primary method for valuing Internet stocks since most firms are not earnings positive. Or if they are, the P/E is often off the charts still EBITDA cash flow multiple The way mature media companies are valued such as Time Warner, Disney or TCI. Usually EBITDA cash flow Revenue per subscriber Primary way to value ISPs such as PSINet, Earthlink, Mindspring or AOL Lifetime value of an e-buyer* This is the metric we think will be key very soon in valuing Internet companies, especially Amazon.com, CDnow, Egghead, ONSALE and etailers (and it is!) Effective deal value What a deal went for after factoring cash and debt or other considerations that affect the outcome of the offer Market cap/POP* A ratio for comparing ISPs that have points of presence Market cap or PMV to to potential market share Helpful in determing future revenue, cash flow and earnings to see if the firm is under or overvalued to its potential Market cap/total Internet users* The value of a firm's reach globally per user Revenue/direct e-marketing* Shows yield of campaign efficiency, useful for direct sellers such as Xoom.com Market cap/Websteader* Useful for valuing community of free home page providers such as GeoCities, theglobe.com or Lycos' Tripod/Angelfire Revenue/Websteader* Measures yield on community sites, how effective Websteads generate revenue for community firms Price/discounted earnings Project earnings and discount back to current stock price; especially useful for firms with losses today; Netscape's IPO was priced this way at 50x projected EPS two years ahead Sales/employee How lean and mean a company operates; 1 engineer to 10 lightbulbs or 10 engineers and 1 lightbulb? Revenue/bandwidth cost* Useful to determine how effectively management deploys its bandwidth to generate revenue; applies to all Web firms but especially those involved in selling Revenue/reach* How much revenue is generated compared to the firm's percentage reach points on the Web; divide by total reach percentage points fnews.yahoo.com