The Application Of Metcalf Model In Enterprise Valuation

The Internet since the last century,after decades of development has become an indispensable part of people's lives,as of the end of 2015,the number of worldwide Internet users has increased to 3 billion from 1 billion 500 million in 2008,of which only China Internet users up to 688 million people.Since the notion of "Internet plus" has become an important strategic in economic field,as the world's largest Internet market,the development of China's Internet companies also entered the fast lane.With the rapid development of the Internet economy,the Internet industry capital operation is becoming more and more frequent,mergers and acquisitions,listed on the new board,listed A shares even listed overseas has to emerge in an endless stream,the demand of the valuation has become louder.But the traditional methods of enterprise valuation in the face of the Internet industry is not effective,most Internet companies,especially start-up Internet companies in the face of continued losses or earnings instability situation,these enterprises are often unable to use traditional methods of valuation,and this part of the enterprise was just an important part of the Internet industry capital operation.Therefore,how to make a reasonable and effective valuation of these enterprises has become a common concern of business owners and investors.According to Metcalf's law as the theoretical basis,considering the Internet enterprise value drivers and the particularity of the Internet industry to build a new model,on the one hand,fully reflects the user resource contribution to the value of the enterprise,on the other hand,by introducing new parameters to take a relatively cautious valuation of Internet companies.In this article use six parameters to create the model to get valuation of start-up Internet companies,such as average revenue per user ARPU,the number of users n,the cost of the company when obtain one new user R,the number of goods and services provided m,and conversion rate ?.The model takes into account the size of the user,the relationship between the size of the user and the value of the firm,and the cost of obtain new users.Furthermore,this paper further proposes that it can provide a theoretical reference for investors by comparing the cost of obtain new users of new Internet companies and of other enterprises in same industries.Finally,this paper uses the model to evaluate the A company,and the result is very low.After analysis,found that the company's average contribution per user is even lower than the cost per user access,largely due to its poor business model.Therefore,the final conclusion is that the future of A company does not have the potential to form a network economies of scale,there is no investment value.