tom.com

tom.com - Last updated: June 2002 Tom.com: Valuation of an...

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Last updated: June 2002 1 Copyright 2002 by Marketspace LLC, a Member of the Monitor Company Group LP. Limited classroom use of this publication for educational purposes is granted to registered members of www.marketspaceu.com . The express permission of Marketspace LLC is required for all extra-classroom use – including any and all publication or recording. Tom.com: Valuation of an Asian Internet Company Prep Questions and Answers 1. This case focuses on how to value an Internet startup that has no current earnings. According to the case, this valuation is accomplished by assessing the future worth of these companies and by making assumptions about revenue, cost and profit growth rates. Are these assumptions reasonable? And how did Tom perform compared to the estimates in the case? Case Exhibit 1 provides a summarized comparison of 1999 and 2000 profit and loss statements and balance sheets. These reports correspond to traditional US financial documents (links to more complete numerical information for professors who would like to spend more time in class discussing the financial aspects of the case are listed on the case dashboard). The following table comprises key pieces of data that help identify a number of interesting points for further discussion. 1999 (projected from Exhibit TN-2) 1999 (actual) Projected 2000 (from case Exhibit TN-3) Actual 2000 Revenue 51.7 M 3.2M 93.1 M 89.2 M Operating Profit n/a (53.3 M) (139.6 M) (383.3 M) Capital Expenditures n/a 312.4 M 200 M 364 M Free Cash Flow n/a (40.4 M) (342.9 M) (623.5 M) One such point is that, with the exception of projected versus actual revenues for 2000, forecasts from the original case are significantly different from what actually occurred in 1999 and 2000. Given the variance between actual and projected numbers over one year, the five-to-10 year estimates of actual value associated with Tom must be looked at skeptically. A second detail to notice about the data in the above table is that its disparities and inflated estimates are similar to dot-com valuations during the late '90s. Managers of these firms were reasonably competent at approximating revenues, but because of market volatility generally had trouble determining the costs associated with generating those revenues. Thus, profitability estimates were variable. This cost-forecasting elusiveness led to a significant focus on revenues as a determinant for long-term value; however, the fact that revenue alone does not lead to success became clear by April 2000 with the downturn in the tech sector. The focus has shifted back to profitability, yet Tom still appears to be emphasizing revenue goals.
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Last updated: June 2002 2 Copyright 2002 by Marketspace LLC, a Member of the Monitor Company Group LP. Limited classroom use of this publication for educational purposes is granted to registered members of www.marketspaceu.com . The express permission of Marketspace LLC is required for all extra-classroom use – including any and all publication or recording. 2.
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tom.com - Last updated: June 2002 Tom.com: Valuation of an...

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