QUICK VALUATION NEWS No. 2

AM | @agumack

"On ne demande pas son âge à une jolie femme" — Frédéric Mazella

[1] Start-up valuation. The French weekly business magazine Challenges reports on the « radar des valos », a survey of more than a hundred French start-up tech companies with a valuation above the €20 million mark (*). BlaBlaCar is still the only Unicorn—defined as a private company valued at more than €1bn. There is little on the valuation methodology; we are told, however, that Challenges worked in tandem with boutique investment bank Cambon partners. The companies are presented in five categories: software/adtech, biotech, objects connectés, fintech, and services et e-commerce.

(*) Laure-Emmanuelle Husson: "La valorisation des start-up reste un tabou", Challenges, 31 May 2017.
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[2] William Sharpe. Barry Ritholz defines William Sharpe as "the man who figured out how to price portfolios via the capital-asset-pricing model, and how to measure risk via the 'reward to variability ratio', or what has come to be known as the Sharpe ratio". We use the CAPM in all of of our DCF valuation cases in class. Now Mr. Sharpe is turning his attention to ... retirement planning (*).

(*) Barry Ritholz: "Tackling the Nastiest, Hardest Problem in Finance", Bloomberg, June 5, 2017.
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[3] Infinite cash-flows. Last week in Security Analysis BSF313 I stayed a few minutes after class with a student to show that our calculations were OK (it was an old case from Prof. Damodaran on Procter & Gamble with the two-stage growth Dividend Discount Model). In the end, we agreed on the valuation. By throwing cash-flows for a ridiculously long number of years —something that Excel allows you to do in a matter of seconds— you can check your calculations. This is very useful when discount rates change, and when there are doubts about the discount rate that applies to the Terminal Value (TV) and to the PV of the TV. Remember to use discount factors when discount rates change!
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[4] Amazon'stock price. And Amazon [NYSE: AMZN] hits $1,000. Chapeau! Warren Buffett recently acknowleged what a miss it had been. But he added that it was too late to buy the stock now. Analysts, though, remain quite bullish:

Analysts on Wall Street are overwhelmingly bullish — only one brokerage has a hold and none have "sells", according to Bloomberg terminal data, and some of the most optimistic see shares hitting $1,250 in the next 12 months. Few want to miss out on one of the Internet's biggest stock runs. Amazon shares are up 38% from a year ago and 14 times more valuable than they were a decade ago (*).

I am currently reading Prof. Damodaran's latest book Narrative and Numbers. The Value of Stories in Business, which contains his most recent valuation of Amazon. I plan to review it here. Spoiler: even his most favorable scenario yields a value per share that is well below current prices.

(*) Elisabeth Weise: "Amazon stock hits $1,000. What will keep it from $2,000?", USA Today, 30 May 2017.
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