 Rational Pricing of Internet Companies RevisitedEduardo S Schwartz and Mark Moon The Financial Review, 2001, vol. 36, issue 4, 7-25 Abstract: In this article we expand and improve the Internet company valuation model of Schwartz and Moon (2000) in numerous ways. By using techniques from real options theory and modern capital budgeting, the earlier paper demonstrated that uncertainty about key variables plays a major role in the valuation of high growth Internet companies. Presently, we make the model more realistic by providing for stochastic costs and future financing, and also by including capital expenditures and depreciation in the analysis. Perhaps more importantly, we offer insights into the practical implementation of the model. An important challenge to implementing the original model was estimating the various parameters of the model. Here, we improve the procedure by setting the speed of adjustment parameters equal to one another, by tying the implied half-life of the revenue growth process to analyst forecasts, and by inferring the risk-adjustment parameter from the observed beta of the company's stock price. We illustrate these extensions in a valuation of the company eBay. Copyright 2001 by MIT Press. Date: 2001 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:36:y:2001:i:4:p:7-25 Ordering information: This journal article can be ordered from Access Statistics for this article The Financial Review is currently edited by Cynthia J. Campbell and Arnold R. Cowan More articles in The Financial Review from Eastern Finance Association Contact information at EDIRC. |
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