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Valuing Internet companies: a DEA-based Multiple Valuation Approach

Author

Listed:
  • C-TB Ho

    (National Chung Hsing University)

  • C-K Liao

    (National Chung Hsing University)

  • H-T Kim

    (Nottingham University)

Abstract

The Internet industry has created a great deal of marvels over the past decade. Assessing Internet companies’ values provides an alternative tool to help make better investment decisions. This paper presents a hybrid of both DEA and multiple valuation methods to valuate Internet companies. Four tailored valuation methods were proposed and a sample of 52 firms was tested based on Price-to-Gross Margin ratio. With the focus on the estimation direction (overvalued/undervalued), verified with the real prices, an accuracy rate of approximately 70% on average has been obtained from these four methods. The proposed methods allow investors to have a more accurate estimation of the subject company's current and future stock prices. This implies that the research results could help investors when they are making long-term or short-term investments.

Suggested Citation

  • C-TB Ho & C-K Liao & H-T Kim, 2011. "Valuing Internet companies: a DEA-based Multiple Valuation Approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(12), pages 2097-2106, December.
    • Handle: RePEc:pal:jorsoc:v:62:y:2011:i:12:d:10.1057_jors.2010.191
    DOI: 10.1057/jors.2010.191
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    References listed on IDEAS

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    1. Paradi, Joseph C. & Schaffnit, Claire, 2004. "Commercial branch performance evaluation and results communication in a Canadian bank--a DEA application," European Journal of Operational Research, Elsevier, vol. 156(3), pages 719-735, August.
    2. Yong Keun Yoo, 2006. "The valuation accuracy of equity valuation using a combination of multiples," Review of Accounting and Finance, Emerald Group Publishing, vol. 5(2), pages 108-123, May.
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