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Valuing Internet Ventures

Author

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  • Athanassakos George

    (The University of Western Ontario)

Abstract

This article attempts to demonstrate that Internet venture valuations are not subject to different valuation standards and rules, even though one needs to expand on the traditional valuation approach to make it applicable to internet valuations. It is shown that traditional valuation methods (such as the discounted cash flows approach) understate value twice; first, when risk changes over time and second, when flexibility matters to an investment decision. As a result, when analysts use traditional valuation approaches to value Internet companies, they may arrive at estimates of very low P/E ratios vis-à-vis observed multiples. The observed high P/E ratios may make most investors turn away from such investments, although the high P/E ratios may be justified based on the option to great riches in the future and the lower risk associated with Internet ventures' cash flows in the future given successful progression through early phases.

Suggested Citation

  • Athanassakos George, 2007. "Valuing Internet Ventures," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 2(1), pages 1-17, April.
    • Handle: RePEc:bpj:jbvela:v:2:y:2007:i:1:n:2
    DOI: 10.2202/1932-9156.1005
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    Cited by:

    1. Zarzecki Dariusz, 2010. "Valuing Internet Companies. Selected Issues," Folia Oeconomica Stetinensia, Sciendo, vol. 9(1), pages 105-120, January.
    2. Rodríguez Vázquez Verónica Patricia & Aca Varela Jaquelina Marcela, 2010. "El flujo de efectivo descontado como método de valuación de empresas mexicanas en el periodo 2001-2007," Contaduría y Administración, Accounting and Management, vol. 55(3), pages 143-172, septiembr.

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