Applicability Analysis Of Valuation Model For Internet Companies In Primary And Secondary Market

Since 21 th century, mobile network has entered majority of families during the globalization of Internet. Great changes has occurred to people's life, work, entertainment, etc. As a media or distribution of information, internet has risen to greatly change the business model and working environment of traditional companies, bringing new value chains and a lot of efficiency. With the change, the counterparties in the value chain also changed a lot. New companies that improve the internet industry have been established one after another and some of them have become the new top companies with a surprisingly large market value.Through observing valuations of the capital market, we've found that investors in the market rely more on subjective judge when deciding the valuation of companies. Internet companies' business model can usually be divided into two stages: 1) end users' accumulation on earlier stage and 2) making profit through the large user base on later stage. On earlier stages, many internet companies cannot make profit or even revenue, which makes it problematic to get the valuation.Based on traditional valuation model, we found that a valuable company must have profit for its shareholders. Only by making forecast on the profit for shareholders and then discounting the profit can we get the present value of a company. Internet companies on earlier stages often have no profit, and some companies making profit are still not in a stable development, which makes it difficult to make forecast.This article will mainly discuss about the applicability of traditional valuation models of internet companies on primary market and secondary market, point out the difficulties, and make adjustments based on original models so as to better analyze the valuation of internet companies.During the research and analysis, we found that the main difficulties are 1) how to judge the value of a company without revenue temporarily and 2) how to get the corresponding rate of return for the large risks.By research of this article, we get the intrinsic value of the target company, which is similar to or different from market value to some extent. We believe intrinsic value will decide market value in long run. Therefore, it will be helpful for investors to judge the value of a company in long run if he or she can get a relatively reasonable intrinsic value.