Damodaran: Nr. of users drives pricing of social media companies

In his article Aswath Damodaran correlates key metrics of different listed social media companies.
Strongest correlation of EV/MaCap is with Nr. of users of service.
Value per user in terms of EV also depends of kind of service offered by company. Compare Netflix EV/user  of USD576 for instance with Twitter (USD77).

However he has difficulties of justifying the valuations based on traditional fundamentals (earnings/cashflows, growth and risk). For now however its more a pricing (based on nr of users) than a value view.

I always enjoy Damodarans articles, since his approaches are very resourceful yet always based on data. Furthermore his techniques are seldom rocket-science and can always be understood, an advantage in my point of view since it reduces potential errors being made during the computations. I wished this kind of thinking would also come so easy to me. Until then i will continue reading his blog and trying to learn.


Edit 1/22.02.2014:
Make sure you also read mmi's comment on the Whatsapp takeover.
Very insightful about a) the network effect creating stickiness regarding the user of Whatsapp and b) Whatsapp is not a social media company.
Both points are very much true and ought to be considered.

Interesting Reads: End of October

Here some interesting articles I found this week:

FT: Chinese banks flee London to avoid tough regulation of their business, moving to Luxembourg.
WSJ: Spanish region Catalonia has been the engine of the countries economy. Call for independence intensives. A move we can see in different countries as well (Scotland-UK; North Italy-Italy; Flanders-Belgium).

In German (sorry):
BZ: Record high in suspected money laundering in German, esp. in the real estate sector.
FTD: Germans keep their cash very liquid, deleting long-term deposits. Parallels to the dot-com crash?
WSJD: Failed broker MF Global lost total oversight of its financial situation well before  its 700 million disaster.

Links of the week: Short MANU, Black Swans, Damodaran Valuation Class

1. Shorting Manchester United (MANU): Good write-up of reasons and risks in shorting MANU, in my opinion a good shorting target. High CapEx, combined with limited growth opportunities, bad track record of listed football clubs. However Soros Fund desclosed a stake in MANU after IPO, what makes me wonder.
2. Latest Oaktree Memo: On Uncertain Ground: 15 page memo on the sluggish recovery, longer term economic outlook and problems, black swans. Best to download as pdf-file.
3. The US fall semester started recently. Prof. Aswath Damodaran started his online valuation class again. There are different ways to follow him, via special learning platform Lore, Youtube, iTunes or his School website. I am taking his class too and its a pleasure to follow and learn. Currently we are in the 3rd lessons, so its still easy to begin and catch up! Contents will cover intrinsic (DCF)/relative/option valuation.

Weekly links: Damodaran/China focus

Prof. Damodaran continued his series about value investing:
1. Contrarian Value Investing (must read, extremely interesting!!)
2. Activist Investing (more for informational purpose, since huge funds are needed to play)

And here the China focus:
1. Bronte Capital about Chinese kleptocracy (mostly state owned companies)
2. Research paper about Evergrand Real Estate Group (pdf, Chinese fraud, HK listing, very detailed!)

Its already Thursday, but better later than never!
A nice week!

Interesting reads

So today is the day of the (second) election in Greece, what a lot of journalists are picturing as the final battle for/against the Euro: Good, old pro-EUR party (ND) against greedy, untrustworthy far left newcomers, screaming to get kicked out of the Euro zone.
In my opinion this is exaggerated, at least on the short run I expect Greece to stay with the Euro, since both parties want to -more or less- renegotiate the cuts and the EU (Hollande) will probably be willing to talk too, despite Merkels no-negotiation announcements.
Anyway im exited to see the outcome of the votes and market-reaction on Monday.

Now lets come to the links:
1. After his series of posts on growth (recommendation!)  Aswath Damodaran is following up with a series about Value Investing, starting two weeks ago with Value Investing: An Identity Crisis? and more recently Passive value investing: Screening for bargains. Interesting in the last post are, besides his very good instructions of how screening stocks is actually done, his closing thought on the moat of the investor and his odds of success.
2. The Brooklyn Investor on "the good old times" and todays market environment, with high-frequency trading, volatility, revolving doors and too efficient markets.
3.Value Walk on stocks and the Greek elections, seeing investment opportunities in Greece.

Thats it for now, have a nice sunday!

Price/Earnings multiples of major companies in the past (1998) and now

Since quite a while I have been reading a book about security valuation: “Security Analyses on Wall Street: a comprehensive guide to today’s valuation methods” by J.C. Hooke. While the content is quite outdated now, it still provides a good overview and some insight. After all methods didn’t change too much.

However there was a table with P/E multiples from several major companies, many of which today still exist. Since some analysts often emphasis the historical cheapness when comparing historical to today’s multiples.

Name	1998	31.05.2012	%
Coca-Cola	43	20	47%
Procter&Gamble	24	19	79%
Sara Lee	19	35	184%
Cadbury-Schweppes	14	aquired by Kraft
Grand Metropolitan	15	merged with guiness to Diageo (23 P/E)
Kirin	35	143	409%
Unilever	18	17	94%
LVMH	25	19	76%
Nestle	18	15	83%

Of course this is only a little snapshot, however we can see that for most companies this is true, however not on a very big scale (except coca-cola).