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Importance of Managerial Accounting from High Growth Online Company Valuation Perspective

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  • Jan Pekař

Abstract

Young, high growth internet/online companies are an attractive topic for market analysts and hot shots of Initial Private Offerings. At the same time, it is very complicated to provide a robust valuation for such companies, as shown by often unpredictable paths of share prices, resulting in the dot.com bubble burst in the past. This paper aims to explain why traditional valuation techniques fail to identify the value of a company with a fair degree of probability and tries to identify new metrics reported by managerial accounting that should be included in the valuation procedure. Assuming the condition of technological interchangeability of processes and practices, the presented paper concludes that using the New Economy specific metrics, such as traffic and various conversion factors explaining top-line traffic monetization, it is possible to adopt a conventional valuation technique, i.e. the DCF, with a very high degree of confidence for the incremental revenue and profit estimations. The interchangeability is also a proof of an innovative potential of the newly introduced technologies and explains the high frequency of strategic acquisitions on this market. Needless to say, the key information sources for valuation of companies under consideration are not financial statements, but managerial records instead, especially web analytics and search algorithm entries.

Suggested Citation

  • Jan Pekař, 2017. "Importance of Managerial Accounting from High Growth Online Company Valuation Perspective," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2017(3), pages 129-144.
    • Handle: RePEc:prg:jnlefa:v:2017:y:2017:i:3:id:192:p:129-144
    DOI: 10.18267/j.efaj.192
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    References listed on IDEAS

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    1. Eli Ofek & Matthew Richardson, 2001. "DotCom Mania: The Rise and Fall of Internet Stock Prices," NBER Working Papers 8630, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Online company valuation; High growth start-up valuation; Online business metrics;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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