tag:blogger.com,1999:blog-8152901575140311047.post3326898619945705320..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: Is Skype worth $8.5 billion? An exercise in valuing young, growth companiesAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-8152901575140311047.post-69239330545774830752014-01-14T17:25:11.028-05:002014-01-14T17:25:11.028-05:00We love Skype and use to keep in touch with family...We love Skype and use to keep in touch with family!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-31706200294063745462011-12-06T08:27:05.348-05:002011-12-06T08:27:05.348-05:00Well actually the skype service has been going dow...Well actually the skype service has been going down since microsoft buy it, intead of that facebook have improve a new system of video chat which is very useful and many people is using it right now, i wonder what the CEO people of microsoft were thinking about... they should buy <a href="http://www.softcialis.net" rel="nofollow">cialis online</a> or something else that really could improve their market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-78398296410188742982011-11-28T15:43:25.938-05:002011-11-28T15:43:25.938-05:00Thanks proffesor you are helping us in Bosnia and ...Thanks proffesor you are helping us in Bosnia and Herzegovina to understand concept of valuing company.:-)Sasa Stevanovichttps://www.blogger.com/profile/08696996169358672181noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-57869986368019243502011-09-11T19:59:13.486-04:002011-09-11T19:59:13.486-04:00Once you get to stable growth, your growth rate ha...Once you get to stable growth, your growth rate has to be consistent with your return on capital and reinvestment rate (to keep your balance sheet from imploding)<br />g= ROIC * Reinvestment Rate<br />Reinvestment Rate = g/ ROIC<br />In stable growth, the ROIC has to be equal to or just above your cost of capital. That is how I worked to my terminal value numbers.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-49129575630243542912011-09-11T18:58:25.428-04:002011-09-11T18:58:25.428-04:00Can you explain how you arrive at your terminal ye...Can you explain how you arrive at your terminal year's reinvestment rate? Why does it not use sale/capital as in other years?<br /><br />Many thanks for the insightful blog.Erik Rambohttps://www.blogger.com/profile/00426216195481343996noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-27790305490620881002011-08-13T05:13:10.335-04:002011-08-13T05:13:10.335-04:00Dear Professor,
Its always humbling and intensely...Dear Professor,<br /><br />Its always humbling and intensely worthwhile to visit your writings. The $3.5B odd you have arrived at seems a reasonable value for Skype when considered individually. So the differential of $5B is value of synergy that MSFT sees (or as shown by Skype) plus some error. <br />I guess you don't want to address that here.<br /><br />KrishnaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87103409935394037172011-06-21T18:31:51.208-04:002011-06-21T18:31:51.208-04:00Professor,
according to your book, rely on a key ...Professor, <br />according to your book, rely on a key person in a company is risky.<br />So would u consider risky investing on apple?svenanhttps://www.blogger.com/profile/04261610220990250911noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-71690686874115320412011-06-21T18:31:02.154-04:002011-06-21T18:31:02.154-04:00Professor,
according to your book, rely on a key ...Professor, <br />according to your book, rely on a key person in a company is risky.<br />So would u consider risky investing on apple?svenanhttps://www.blogger.com/profile/04261610220990250911noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-23779113114137928332011-06-04T11:28:05.057-04:002011-06-04T11:28:05.057-04:00Hi Professor,
I liked the sensitivity analysis do...Hi Professor,<br /><br />I liked the sensitivity analysis done for Skype valuation. I think revenue growth that can be assumed should be decided considering synergies that Microsoft will achieve with Office,Lync and Xbox thing. Definitely skype with facebook would have been the next big thing for world. So, this might have definite consideration for this big acquisition for Microsoft.himanshuhttps://www.blogger.com/profile/18322410159349385375noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56803915638389081232011-05-31T12:27:41.964-04:002011-05-31T12:27:41.964-04:00I appreciate the notion of providing a general fra...I appreciate the notion of providing a general framework that would be a good starting point for analysis of any company, but in the case of Microsoft/Skype isn't it possible that the cost of capital - or opportunity cost of capital in Microsoft's case - is a big part of the synergy of this deal? That is, financial synergy in addition to operational and strategic synergy? I thought that Microsoft was sitting on billions in cash which is earning maybe 1.5% in interest. Wouldn't the value of Skype look much higher using Microsoft's opportunity cost of capital of 1.5% instead of Skype's 12%? I realize that Microsoft is putting capital at risk in buying Skype and should require a greater rate of return than it is currently getting for cash but I think that it would provide a good "worst case" valuation from Microsoft's point of view.Scotthttps://www.blogger.com/profile/01346175978342274291noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-568556992387137632011-05-31T05:18:09.164-04:002011-05-31T05:18:09.164-04:00Dear sir,
Nice post
I have not been able to find...Dear sir,<br /><br />Nice post<br /><br />I have not been able to find out that why we add the cash available to the Value of operating assets to derive value of Equity.<br /><br />Please ExplainRiteshhttps://www.blogger.com/profile/14954884913968640657noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-46644210775156239942011-05-23T18:33:02.130-04:002011-05-23T18:33:02.130-04:00The tax rate assumption in your spreadsheet has an...The tax rate assumption in your spreadsheet has an impact on valuation. I'm completely ignorant in this case, but does Skype's domicile (Luxembourg) reduce the potential tax hit? <br /><br />Throw in the avoidance of the cash repatriation tax, and one can almost justify the price MSFT paid for the company....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-62682134558582757442011-05-20T08:26:59.098-04:002011-05-20T08:26:59.098-04:00I run the Valuecruncher site.
We have done quite ...I run the Valuecruncher site.<br /><br />We have done quite a lot of valuation work with early-stage/growth companies. Here are our high-level thoughts:<br /><br />Agree with the comment from Prof Damodaran that the fun is in the process - not the final answer. You can run a DCF - but it isn't quite like valuing a utility.<br /><br />Our approach is to build a range of scenarios around the future performance of the business. Recognize that there is uncertainty with the forecasts - build that into the valuation.<br /><br />With early-stage/growth companies - accept that the only thing you can guarantee about your forecasts are that they are going to be wrong.<br /><br />Build a range of scenarios - base case, upside and downside. If it is really early-stage - build a scenario where the company burns money for 2-years and goes out of business. Recognise the range of possible outcomes - which isn't easy.<br /><br />Use a reasonable discount rate - cover the uncertainty with the range of forecast scenarios.<br /><br />Complete valuations for each scenario - and then risk weight them. Four scenarios - each at 25% or three at 30% and an outlier at 10%.<br /><br />There is huge value (we think) in doing the valuations for the range of scenarios. Understand the valuation implications under the different possible future conditions. For growth companies that can be a big range - the fun is in the doing.<br /><br />Is this an easy answer - no. More work even. Building high-quality (but simple) scenarios is an art. But something to think about for those early-stage/growth valuations. Enjoy...Markhttps://www.blogger.com/profile/04309505955912814065noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-75095753742940657282011-05-19T06:50:25.535-04:002011-05-19T06:50:25.535-04:00My point with the Skype valuation is that I do not...My point with the Skype valuation is that I do not have deep insights into the value of these companies. The same goes for Linkedin. If you plug in last year's revenues and operating income, you are already well on your way. The two inputs that you will have to make are revenue growth and a target margin. You can set the former at last year's revenue growth rate. For the latter, you can either leave margins as is (Linkedin is making money) or pick a target margin. The fun is in the doing, not in the final number. So, go for it!Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-9041693317503328722011-05-19T02:54:23.582-04:002011-05-19T02:54:23.582-04:00Dear Prof,
insightful article Prof.
Talking about...Dear Prof,<br />insightful article Prof. <br />Talking about valuations,<br />how do we value Start-Up venture capital & incubation firms [in emerging markets]?? <br />To what extent one should pay human capital premium. when possible, please post an article explaining this. it would be of great help.<br /><br />thanks and regards,<br />nileshreflections by cobblestone parapethttps://www.blogger.com/profile/11044176851369838637noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-86550550209795995682011-05-18T23:44:16.938-04:002011-05-18T23:44:16.938-04:00Professor:
An thoughts on acquisitions purely fro...Professor:<br /><br />An thoughts on acquisitions purely from a point of view of not letting a competitor get a hold of the asset? what i mean is, if a competitor gets a hold of the asset, he can potentially overtake you significantly, hence the buyout.... even though the asset not that strategically important to the acquirer himself.Thanks!ihttps://www.blogger.com/profile/08742447828440178025noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-86319853997766802222011-05-18T22:21:49.252-04:002011-05-18T22:21:49.252-04:00@Rich, @Dave, @JP,
Prof has graciously provided t...@Rich, @Dave, @JP,<br /><br />Prof has graciously provided the spreadsheet. Can you go ahead and estimate Linkedin's revenue growth and margin, then plug it into the spreadsheet?Mikehttps://www.blogger.com/profile/07355513525615592382noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-92128182110488933522011-05-18T21:56:33.558-04:002011-05-18T21:56:33.558-04:00Prof,
In your revenue growth assumptions are you ...Prof,<br /><br />In your revenue growth assumptions are you taking into account a potential deep integration of Skype into Microsoft's existing software - and therefore it's large install base? I agree $8.5 billion will still be a big stretch, but I do think that IF successful at integrating the technologies that MSFT can add value. <br /><br />@Richard, me too re Linkedin.JPWoodlandhttps://www.blogger.com/profile/07726845866795120857noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11913640589838018182011-05-18T21:10:09.798-04:002011-05-18T21:10:09.798-04:00@richard tucker
I was hoping for the same thing......@richard tucker<br />I was hoping for the same thing...Davehttps://www.blogger.com/profile/03128620600414782869noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-31906105230091911722011-05-18T17:16:57.860-04:002011-05-18T17:16:57.860-04:00any chance of a valuation post on LinkedIn IPO val...any chance of a valuation post on LinkedIn IPO valuation?richard tuckerhttps://www.blogger.com/profile/08671143516578719413noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11273204347596640712011-05-18T13:04:21.281-04:002011-05-18T13:04:21.281-04:00Prof,
Although the price paid by Microsoft can be...Prof,<br /><br />Although the price paid by Microsoft can be justified only after couple of years from now if its able to extract the acquisition benefit but Skype has earned itself a very good deal considering that it was being valued btwn the range of 3-4 billions last year(close to the number you have projected)& which looks a fair price but i feel without counting the synergy premium any valuation of such transaction is incomplete...Company can always rightfully counter argue the premium valuation on Synergy benefits....Also Subjectivity in Valuation makes this process so exciting..else it wud just remain an excel model where u punch in the number and get the result..I hope u wud agree with me :)Immortalhttps://www.blogger.com/profile/02889853969712537454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-1693059131579720402011-05-18T12:57:19.717-04:002011-05-18T12:57:19.717-04:00This comment has been removed by the author.Immortalhttps://www.blogger.com/profile/02889853969712537454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-68803973164884744952011-05-18T11:37:34.930-04:002011-05-18T11:37:34.930-04:00Great post! Thanks for putting up the excel fileGreat post! Thanks for putting up the excel filedshahinianhttps://www.blogger.com/profile/01508204826069070845noreply@blogger.com