Purpose: This study sought to enhance the process of valuing young companies with a high potential for growth, by considering the link between the member base and the market value of the company. Outcomes were supposed to be an increase in predictive potential concerning young companies and their value as investments. A potential integration of more accurate methods would lead to a significant rise in profits for investment companies. Moreover, the resulting increase in trust in risky projects through better understanding of their value would also increase the number of new innovations. Hence, more funding would be available due to decreasing investment risk.
Methodology: Following the Platonist philosophy proposed by Lomas (2011), the study incorporated three steps. First, an intensive investigation revealed factors which have an impact on the value of companies, and evaluated traditional approaches. The second step was to predict the potential of the new methods based on the member base of the organisation. Finally, the last step was deployed in a mixed case study approach following the recommendations of Yin (2009), where these predictions were challenged. In particular, LinkedIn, Xing and Viadeo were chosen to challenge the proposed method based on the research of Krafft et al. (2005) and Kemper (2010).
Findings: The literature review was able to reveal several gaps in traditional methods, particularly when it comes to valuing young companies. Additionally, primary research – more precisely, qualitative interviews – revealed that traditional calculations are, at best, used as secondary sources, when it comes to the value of a young company. Accuracy was revealed by the interviews to be acceptable given the high potential for profit. But, considering the low success rate of 30% to 50%, a high potential for more accurate prediction was revealed. The model was successfully deployed in the case studies, where qualitative and quantitative data was used to determine the value of each company under consideration for several different time periods. The direct comparison of traditional valuation methods with the new proposed method revealed the high potential of the member-based method. It has been established that the new model can considerably increase the accuracy of the valuation and assist in predicting member base growth.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Course of analysis
- Research motivation
- Research aims and objective
- Possible application
- Methodology
- Research approach
- Data collection
- Case study methodology
- Choosing between single and multiple case study approach
- Data analysis
- Common valuation methods
- Traditional valuation approach
- Asset value approach
- Market value approach
- Discounted cash flow
- Real option pricing
- Reconsiderations
- Network effect models and Customer Valuation
- Network theory
- Literature review in regard to the Customer Valuation
- Customer Valuation
- DCF Customer Equity Model
- Real Option Customer Equity Model
- Binominal scenario tree technique developed by Krafft et al. (2005)
- Reconsideration
- Case studies
- Investigation into the network effect of social media-based recruiting companies
- LinkedIn case study
- LinkedIn – introduction and core products
- LinkedIn – PESTLE analysis
- LinkedIn - SWOT analysis
- LinkedIn – financial statement
- LinkedIn – historical stock price
- LinkedIn – traditional valuation
- LinkedIn – intrinsic valuation
- LinkedIn – relative valuation
- LinkedIn – investigation into the customer base
- Members, page visits and activity
- Network effect (Small World)
- Network geographically and further considerations
- The new model Krafft et al. (2005) - member valuation approach
- Comparison of the different methods
- Outcome limitations and reconsiderations
- Xing case study
- Xing – introduction and core products
- Xing – PESTLE analysis
- Xing - SWOT analysis
- Xing – financial statement
- Xing – historical stock price
- Xing – traditional valuation
- Xing – intrinsic valuation
- Xing – relative valuation
- Xing – investigation into the customer base
- Members, page visits and activity
- Network effect (Small World)
- The Krafft et al. (2005) model
- Comparison of the different methods
- Outcome limitations and reconsiderations
- Viadeo case study
- Viadeo – introduction and core products
- Viadeo – PESTLE analysis
- Viadeo – SWOT analysis
- Viadeo – traditional valuation
- Viadeo – multiple valuation
- Viadeo – investigation into the customer base
- Members, page visits and activity
- The Krafft et al. (2005) model
- Comparison of the different methods
- Sensitivity analysis
- Outcome limitations and reconsiderations
- Cross-case study reconsiderations
- The limitations of traditional valuation methods when applied to young companies with a network effect.
- The potential of customer-based valuation models to provide a more accurate assessment of young companies with a network effect.
- The importance of considering the network effect of customers in the valuation process.
- The application of a customer-based valuation model in real-world case studies, with a focus on social media-based recruiting companies.
- The impact of geographic variation and other factors on the customer-based valuation model.
- Network effect
- Customer valuation
- Member-based valuation
- Discounted cash flow (DCF)
- Social media-based recruiting companies
- Viadeo
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The study aims to enhance the process of valuing young companies with a high potential for growth, by considering the link between the member base and the market value of the company. Outcomes were supposed to be an increase in predictive potential concerning young companies and their value as investments. This research will contribute to the understanding of customer-based valuation methods and how they can be applied to young companies with a significant network effect.Zusammenfassung der Kapitel (Chapter Summaries)
The first chapter introduces the research topic, highlighting the difficulties in valuing young companies, particularly those with a network effect, using traditional methods. It outlines the research objectives, questions, and hypotheses. The chapter also discusses the methodology used, including the Platonist philosophy, data collection, and analysis techniques. The second chapter explores common valuation methods, analyzing traditional approaches like the asset value approach, the market value approach, and discounted cash flow (DCF) models. The chapter also examines the limitations of these methods when applied to young companies, especially those with a network effect, and explores the potential benefits of using real option pricing. The third chapter delves into network effect models and customer valuation, focusing on theories and models that attempt to incorporate the customer base into valuation calculations. The chapter examines different approaches, including customer lifetime valuation, DCF customer equity models, real option customer equity models, and the stochastic process model developed by Krafft et al. (2005). The fourth chapter provides detailed case studies of three social media-based recruiting companies: LinkedIn, Xing, and Viadeo. Each case study involves an analysis of the company's internal and external environment, including PESTLE and SWOT analyses. Traditional valuation methods are then applied, and the results are compared with the historical market price. The chapter also explores the application of the Krafft et al. (2005) model, highlighting its potential and limitations. The fifth chapter summarizes the findings, highlighting the strengths and weaknesses of traditional and customer-based valuation methods. The chapter also discusses the key insights gained from the case studies and the importance of further research into specific areas, such as the network effect and cash flow assumptions. The final chapter concludes the research, offering a broader perspective on the importance of customer-based valuation models in valuing young companies with network effects. The chapter emphasizes the need for further research to refine the model and address its limitations.Schlüsselwörter (Keywords)
The study focuses on the valuation of young companies with a significant network effect, specifically those operating in the software and social media recruiting sectors. Key themes include:- Quote paper
- Bernhard Prantl (Author), 2015, Valuing young companies. A member-based approach, Munich, GRIN Verlag, https://www.grin.com/document/292852
