Case Study on the Valuation of Social Media: Initial Public Offering of Facebook as an Example
Date Issued
2012
Date
2012
Author(s)
Li, Yun-Sheng
Abstract
This thesis conducts a research on the valuation of the recently popular industry, social media and in a case study approach focusing on Facebook’s initial public offering (IPO) took place in mid May of 2012. The academic opinions about whether social media, which employing a never-have-been-seen business model shall be valued under the traditional valuation methods, including discounted free cash flow valuation model and discounted abnormal earnings valuation business model, haven’t yet been clear. Meanwhile, some scholars have proposed some new models logistic-curve valuation model to value social media, taking into consideration the non-financial indicators like number of users or visitors. However, few papers have conducted research to see whether these newly-established models could more accurately value the social media companies. This thesis thus conducts a case study on Facebook’s IPO, starting from compiling and discussing on social media, valuation techniques and Facebook’s IPO process. Then traditional methods, which are discounted free cash flow valuation method and discounted abnormal earnings valuation method, as well the logistic-curve valuation method proposed by Cauwels and Sornette (2012) are employed to value Facebook’s offering price. The results show that, even if the non-financial information shall be considered while constructing assumptions under traditional methods, discounted free cash flow valuation method (estimating from 30.87~59.64) and discounted abnormal earnings valuation method (estimating from 23.70~66.97) are still proper for valuing the social media while logistic-curve method can’t function alone and can’t deliver superior results to traditional methods.
Subjects
Facebook
social media
initial public offering (IPO)
logistic curve
non-financial information
Type
thesis
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