ValuationModelApplicatio課件

1、Internet Co. Valuation Appendix.ppt0 Andersen Consulting 2000The market uses a range of valuation techniques, both bottom-up and top-down.n Bottom-up estimation tools Discounted cash flow Real optionsn Comparative ratio analysis Price/addressable market (e.g., customers) Price/sales or price/revenue

2、 Price/earningsn Top-down estimation tools Customer lifetime valueOverview of valuation techniquesInternet Co. Valuation Appendix.ppt1 Andersen Consulting 2000Each technique brings inherent strengths and weaknesses which are biased toward certain situations. Price/Addressable Market RatioPrice/Sales

3、 (Revenue) RatioPrice/Earnings RatioProsConsBasic ConceptWhen to usePro rata valuation based on value to market size for a comparable businessPro rata valuation based on value to sales/revenue for a comparable businessPro rata valuation based on value to earnings for a comparable businessn Based on

4、actual market datan Availability of inputsn Based on actual market datan Commonly used proxy for P/E ratiosn Based on actual market datan Market accepted ration Appropriate comparable ventures requiredn Uncertain market sizesn Appropriate comparable ventures requiredn Reliant on accurate forecasts /

5、projectionsn Appropriate comparable ventures requiredn Reliant on accurate forecasts /projectionsCustomer Lifetime ValueLifetime market value per customer times the number of customersn Basic calculations, easy to understandn Data reasonably availablen Low level of accuracy n Relies on averages and

6、assumptionsReality check alternative valuations, new business venture situations New product development, market entry assessments, start-up situationsHigh growth start-ups, large initial outlays , delayed earningsDeveloped or maturing initiatives and ventures, established products & marketsDisc

7、ounted Cash FlowsReal OptionsSum of discounted future net cash flows generated by the businessOption pricing multiple of present value of future earningsn Generally accepted and well understoodn Low margin of errorn Incorporates value of uncertaintyn More accuraten Time consuming cash estimation pro

8、cessn Static assumptionsn Mathematical complexityn Limited usage, not well understoodIncremental growth or existing business improvement evaluationsHighly uncertain / volatile situations, large number of possible outcomesValuation ModelOverview of valuation techniquesInternet Co. Valuation Appendix.

9、ppt2 Andersen Consulting 2000Appendix: Internet company valuation techniquesOverview of valuation techniquesViewpoints of leading analystsQuantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt3 Andersen Consulting 2000The following approaches illustrate the different valuat

10、ions of E*Trade.n Bottom-up estimation tools Discounted cash flow Real optionsn Comparative ratio analysis Price/addressable market (e.g., customers) Price/sales or price/revenue Price/earningsn Top-down estimation tools Customer lifetime valueQuantitative examples of valuation techniquesE*Trade Val

11、uation ($m)$1,127$12,794$4,446$804$4,088$5,059$4,9231Actual market value:Source: (1) http:/ as of June 6, 2000Note: TD Waterhouse used as a comparable firm when required.Internet Co. Valuation Appendix.ppt4 Andersen Consulting 2000The traditional discounted cash flow (DCF) valuation relies on reason

12、ably accurate forecasts.DCF Y1Estimated market valueNet salesCosts of goods soldGross profitOperating expensesOperating incomeDiscount rateYear 1Year 2Year 3Year 4Year 5Discounted cash flowNPV (first 5 years) Terminal valueOther income (expense), netEBITProvision for taxesUnlevered net income(Deprec

13、iation and amortization - Capital expenditures - Incremental working capital)Unlevered free cash flowDCF Y2DCF Y3DCF Y4DCF Y5Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt5 Andersen Consulting 2000Year 1Year 2Year 3Year 4Year 5Net sales1,262.2$ 1,730.2$ 2,162.8$ 2,7

14、03.4$ 3,379.3$ (Cost of goods sold- Cost of services)547.4$ 805.0$ 930.0$ 1,162.5$ 1,453.1$ Gross profit714.8$ 925.2$ 1,232.8$ 1,541.0$ 1,926.2$ (Operating expenses)624.8$ 679.1$ 973.2$ 1,216.5$ 1,520.7$ Operating income90.0$ 246.1$ 259.5$ 324.4$ 405.5$ (Other (income) expense, net)48.0$ 46.6$ 46.6$

15、 46.6$ 46.6$ EBIT42.0$ 199.5$ 212.9$ 277.8$ 358.9$ (Provision for taxes (40%)16.8$ 79.8$ 85.2$ 111.1$ 143.6$ Unlevered net income25.2$ 119.7$ 127.8$ 166.7$ 215.3$ Depreciation & amortization32.4$ 32.4$ 32.4$ 32.4$ 32.4$ (Capital expenditures)180.0$ 180.0$ 180.0$ 180.0$ 180.0$ (Incremental workin

16、g capital needs)(297.0)$ (297.0)$ (297.0)$ (297.0)$ (297.0)$ Unlevered free cash flow174.6$ 269.1$ 277.1$ 316.1$ 364.7$ Example : DCF estimated market value for E*TradeNotes: Shaded highlights denote estimates found on SSB 4/20/00, Equity Research- Internet / Financial Services; All other estimates

17、were extrapolated using Andersen Consulting analysis. (1) Marketing expenses, one of the components of operating expenses, has been adjusted downward by 35.5% to reflect what % of operating expenses a more traditional brokerage house (e.g., Merrill Lynch) spends on advertising (Merrill Lynch Annual

18、Report, March 9, 2000). Sources:(2) E*Trade Annual Report, 10/22/99 from Statement of Cash Flows: Operating Activities, year 5. (3) E*Trade Annual Report, 10/22/99 SOCF: Investing Activities. (4) E*Trade Annual Report, 10/22/99 (Working Capital is current assets less current liabilities).234Quantita

19、tive examples of valuation techniquesWe can use the example of E*Trade to illustrate how a DCF works.1Internet Co. Valuation Appendix.ppt6 Andersen Consulting 2000=$ 703 m$ 424 mExample : DCF estimated market value for E*TradeQuantitative examples of valuation techniquesNote: For the purposes of thi

20、s analysis, E*Trades discount rate = 25% based on assumptions from a Lehman Brothers, equity research report, 5/13/99.FCF Year 1 (1+ r*)1FCF Year 2 (1+ r) 2FCF Year 3 (1+ r) 3FCF Year 4 (1+ r) 4FCF Year 5 (1+ r) 5 $174.6 (1+.25)1 $269.1 (1+.25)2 $277.1 (1+.25)3 $316.1 (1+.25)4 $364.7 (1+.25)5Discoun

21、ted free cash flow (Years 1-5) Terminal value (Year 6+) FCF Year 5 (1 + growth) (r - growth) (1+ r)6 $364.7 (1 + .02) (.25 - .02) (1 + .25)6=$ 1,127 mEstimated market value$ 703 m$ 424 mTerminal value (Perpetual year 6 on)DCF (Years 1-5)The discounted cash flow comprises of discounting the free cash

22、 flow (FCF) in high growth years and calculating a terminal value (TV) based on a lower constant growth rate for subsequent years. Internet Co. Valuation Appendix.ppt7 Andersen Consulting 2000The real options valuation model is relatively new and used to incorporate the benefit and uncertainty of fu

23、ture business opportunities into the overall valuation.Notes:(1) The Black-Scholes option multiplier is based on European call options and is derived from NPVq and a stocks volatility, Andersen Consulting analysis.Source:Harvard Business Review Investment Opportunities as Real Options: Getting Start

24、ed on the Numbers, Real options modelPV projected earningsPV investmentNPVqVolatilityOverall risk (Std deviation)Time to expiration in yearsBlack-Scholes option multiplier (look up on chart based on NPVq and Volatility)1PV projected earningsEstimated market valueQuantitative examples of valuation te

25、chniquesInternet Co. Valuation Appendix.ppt8 Andersen Consulting 2000E*Trades valuation is particularly high using this technique due to its volatile estimated future cash flows.Sources:(1) Present value of EBIT forecasts (in DCF), discounted at 25%. (2) SSB Equity Research, Feb 8th, 2000, Investmen

26、ts FY01 Estimate.” (3) Standard deviation of unlevered FCF from year 3 through 10 (6) Present value of EBIT calculations (in DCF calculation 25%).Notes:(4) Since our earnings and investment estimates are for year 1, our expiration must be as well. (5) Based on European call options and is derived fr

27、om NPVq and volatility. Example : Real options estimated market value$ 502m$ 528 m.9570701.0 year26$ 502M$12,794 mPV projected earnings1PV investment2NPVqVolatilityOverall risk ()3Time to expire4Black-Scholes option multiplier5PV projected earnings6Estimated market valueQuantitative examples of valu

28、ation techniquesInternet Co. Valuation Appendix.ppt9 Andersen Consulting 2000The market value / addressable market multiple estimates market value in comparison with a similar company.Market value / addressable market multipleShare price for comparable companyTotal addressable market for comparableN

29、umber of shares outstanding for comparableMarket factorCompany factorValue/ addressable market multipleEstimated market valueMarket value of comparable companyAddressable market for E*TradeNotes:The market and company factors are adjustments to better reflect the value; Andersen Consulting analysis.

30、Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt10 Andersen Consulting 2000Source:(1) http:/ as of May 25, 2000Notes: (2) Merrill Lynch Estimates, AC Analysis. Note in this case the addressable market for E*Trade is the same as that of the comparable company, TD Water

31、house.(3) The market factor is 100% throughout the examples because TD Waterhouse and E*Trade are going after the same market. If they were not, and the market of the comparable company was more attractive, the market factor would be larger than 100%. (4) The company factor takes into account the re

32、lative differences between both companies such as size, stage of development, customer base, brand and eCommerce experience (will always be 75% throughout the examples).Example : Market value / addressable market estimated market valueTD Waterhouse $15.75$ 78,240 m376,400,000100 %75 %0.1%$ 4,446 m$

33、5,928 m$ 78,240 mShare price for comparable company1Total market for comparable2Number of shares outstanding for comparable1Market factor3Company factor4Market value / addressable market multipleEstimated market valueMarket value of comparable companyAddressable market for E*Trade2We can compare E*T

34、rade with TD Waterhouse to illustrate this valuation technique.Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt11 Andersen Consulting 2000The Market value / sales (revenues) ratios are the most widely used valuation tool for eCommerce and Internet opportunities becaus

35、e the data is usually available and reasonably accurate.Notes:(1) The calculation is usually done for sales in current year (CY) + 1 and (CY) + 2 which provides a range for the share price.(2) The market and company factors are adjustments to better reflect the value.Andersen Consulting analysis.Mar

36、ket value / sales (revenue) multiplesShare price for comparable companyTotal sales for comparable companyNumber of shares outstanding for comparableMarket factorSales forecast for E*Trade1Estimated market valueMarket value of comparable companyMarket value / sales (revenue) multipleQuantitative exam

37、ples of valuation techniquesCompany factorInternet Co. Valuation Appendix.ppt12 Andersen Consulting 2000Sources:(1) http:/ as of May 25, 2000.(2) Bloomberg Note:(3) Average of Sales in Current Year (CY) + 1 and (CY) + 2; from SSB 4/20/00, Equity Research.Example : Market value / Sales (revenue) esti

38、mated market valueTD Waterhouse $15.75$ 1,315 m376,400,000100 %75 %$ 1,496 m$ 5,059 m$ 5,928 mShare price for comparable company1Total sales for comparable2Number of shares outstanding for comparable1Market factorCompany factorSales forecast for E*Trade3Estimated market valueMarket value of comparab

39、le company4.5Market value / sales (revenue) multipleWe can compare E*Trade with TD Waterhouse to illustrate this valuation technique.Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt13 Andersen Consulting 2000The price / earnings ratio is the most widely accepted tool

40、for valuing companies, however the difficulty with most eCommerce ventures is that they do not generate earnings during startup.Price / earnings ratioShare price for comparable companyEarnings (EBIT) of comparable companyNumber of shares outstanding for comparableMarket factorCompany factorEBIT fore

41、cast for E*TradeEstimated market valueMarket value of comparable companyPrice / earnings ratioNotes:The Market and Company factors are adjustments to better reflect the value; Andersen Consulting analysis.Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt14 Andersen Con

42、sulting 2000Sources:(1) http:/ as of May 25, 2000.(2) http:/ for TD Waterhouse FY00 EBITDA minus depreciation and amortization.Note:(3) From DCF calculation, FY00 estimate, adjusted to reflect what percentage of operating expenses “older” brokerage firms typically spend on advertising. Example : Pri

43、ce / Earnings estimated market valueTD Waterhouse $15.75 $ 232 m376,400,000100%75% $ 42.0 m$ 804 m$ 5,928 mShare price for comparable company1Earnings (EBIT) of comparable company2Number of shares outstanding for comparable1Market factorCompany factorEBIT forecast for E*Trade3Estimated market valueM

44、arket value of comparable company25.5Price / Earnings multipleWe can compare E*Trade with TD Waterhouse to illustrate this valuation technique.Quantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt15 Andersen Consulting 2000Market analysts often use a high level estimate ba

45、sed on customer lifetime value to sanity check more rigorous calculations and test if current share prices are justifiable.Notes:(1) The number of customers is typically estimated as a market share projection of the total estimated market.Andersen Consulting analysis.Discounted annual revenue / cust

46、omerAverage contribution margin (%)Customer lifetime contributionCost of acquisitionLifetime customer valueChurn rate (%)Number of customers1Estimated market valueSimplified customer lifetime value equationQuantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt16 Andersen Co

47、nsulting 2000We can use the example of E*trade to illustrate how this valuation approach works.Sources:(1) SSB 4/20/00, Equity Research- Internet / Financial Services analysis.(2) SSB 4/20/00, Equity Research Gross Margin FY00 used as proxy.(3) Lehman Brothers Estimates, May 13, 1999, based on (1-re

48、tention ratio) for the industry.Example : Customer lifetime value / estimated market value1Annual revenue per customer 1Average contribution margin (%)2Customer lifetime contributionCost of acquisition1Lifetime customer valueChurn rate (%)3Number of customers1Estimated market value$15.6/trade x20.1

49、trades/ customer = $31362%10%$1,932$256$1,6762,400,000$ 4,088 mQuantitative examples of valuation techniquesInternet Co. Valuation Appendix.ppt17 Andersen Consulting 2000Appendix: Internet company valuation techniquesOverview of valuation techniquesViewpoints of leading analystsQuantitative examples

50、 of valuation techniquesInternet Co. Valuation Appendix.ppt18 Andersen Consulting 2000Although commonly used, price multiple valuations have been criticized as inaccurate valuation measures. CriticizerPrice/SalesMcKinseyValuation ModelPoint of Viewn Price-to-earnings and revenue multiples are meanin

51、gless when there are no earnings and revenues are growing astronomicallyn Price multiples dont account for the uniqueness of a companyn Traditional valuation metrics have offered little or no guidance to investors trying to value Internet stocksn For companies with no earnings, old valuation rules-o

52、f-thumb like to price-to-earnings have lost their relevanceCredit Suisse First Bostonn Internet models have typically been valued on revenues since revenues are a reflection of customer demand for the service and market positionn We do not believe that applying straightforward revenue multiples to a

53、 broad range of online business models is sustainable. At some point you have to grow revenues profitablyJeffriesViewpoints of leading analystsInternet Co. Valuation Appendix.ppt19 Andersen Consulting 2000Two valuation approaches, discounted cash flow and real option analysis, have support for expla

54、ining high Internet valuations.SupporterDiscounted Cash Flow,Free Cash FlowMcKinseyn A modified DCF approach can help to value high-growth, high-uncertainty and high-loss firmsn McKinsey suggest three modifications to make DCF more relevant given uncertaintyStart with the future, instead of the pres

55、ent. In other words, what the industry and company could look like in a future steady stateCreate expected outcome scenarios for different sales, margins and DCF company valueWeigh and assign probabilities to each group of scenario outcomesValuation ModelPoint of ViewCredit Suisse First Bostonn Like

56、 all businesses, Internet companies are valued on their ability to generate cash. If Internet companies have higher valuations than their offline counterparts, the market must believe that they have higher cash flowsn CSFB analysis indicates that New Economy companies tend to have superior cash econ

57、omics than their Old Economy counterpartsn Exemplifying this trend, the earnings of Internet companies such as Dell, Yahoo!, and Amazon dramatically understate their ability to generate cashn These higher cash flows offer one explanation for the highflying valuations in the Internet sectorReal Optio

58、nsMerrill LynchMorgan Stanley Dean Wittern MSDW analyst Jeff Camp believes DCF provides the clearest insight into the fundamental value of a companys equityn MSDW DCF models incorporate assumptions reflecting their view of the short- and long-term prospects for the companies and the industryn ML ana

59、lyst Henry Blodget insists that considering strategic real options is important. With regards to Amazon valuation: “If you project that far out, you absolutely have to consider the value of what a company might do - music, videos, computers, toys, travelCredit Suisse First Bostonn Real options offer

60、 a great way to wed strategic intuition with analytical rigor-an increasingly important issue given the pace of economic changen Real options are a complement to the standard discounted cash flow approach, but add a meaningful dimension of flexibilityViewpoints of leading analystsInternet Co. Valuation Appe