Evaluating Internet Business—From The Perspective Of A Chinese Internet Company

Nowadays, the internet industry is developing rapidly, most of the internet businesses have the demand to go to public, Merger and acquisition, seek venture capital, etc. Reasonable evaluating internet business is crucial to drive these activities to success. But internet business has unique features in evaluating and thus, needs to consider other issues than the traditional financial numbers. Moreover, many of the internet companies have generated negative accounting income though extraordinarily high stock price and growth. Given these background, finding a suitable evaluation model for internet business is apparently needed.This paper is designed primarily to review previous research on the controversy of how to evaluate internet business and the difficult to evaluate internet business. And then is the theoretical part to introduce the basic valuation models, the uniqueness of evaluating internet business and select the suitable valuation model according to the criterions such as reveal the intrinsic value, in this part it conclude that different model has its own advantage and disadvantage, it is better to apply different evaluating models in practice even though the EVA Model could consider reveal both the intrinsic value and the uniqueness of internet company. After that is the empirical research, five models are selected:unleveraged free cash flow model, comparable company model, PEG ratio, discount EVA model and Black-Scholes formula to one typical internet company LightInTheBox, which went to public on June 2013 with high growth rate but negative net income of fiscal year 2012.In the process of calculating the enterprise value according to five models and comparing the results with the reality, it find firstly, the theoretical conclusions of the free cash flow based valuating models could reveal the intrinsic value, while the market based models could reflect the investors’ attitudes to the stock are proved in the empirical. Secondly, each kind of model has its advantages and disadvantages and could reveal the value of internet business from different perspective, but no one is omnipotent. Thirdly, the EVA model should deserve more respected because it could reveal not only the intrinsic value but also consider some uniqueness by adjust the value-driving factors in the process of evaluating.