Internet companies still priced too high?

[YaSO]

If there is any stock broker here, teach me about stocks. I check stock prices occasionally(to kill time) and I notice that companies like Yahoo have enterprise value 10 times as valuable than its revenue or often even more(http://finance.yahoo.com/q/ks?s=YHOO). I think Yahoo is a great company, but isn't it priced too high? Amazon, another example. Is Yahoo's revenue going to grow by 1000% in a year or two? How about Amazon? How about Google(soon to be IPO-ed)?

Don't get me wrong; I am wildly favor of people getting as rich as they can and I like these companies, Yahoo, Amazon, etc. But ... numbers seem too high? Are they not?

[philipwhiteold]

We actually had a similar thread about website valuation over at small business forum. On a much smaller scale than Yahoo! In terms of revenue and physical assets, most web businesses are extremely overvalued.

Yahoo holds a nice corner of the web and has built good name recognition , which is probably one reason why they are valued higher. Amazon is very different from Yahoo! because they sell products rather than services so it's difficult to compare the two. One thing both amazon and yahoo have in common is consumer trust.

Not everyone buys and sells stock based on book numbers.

[manishg_123]

"Amazon is very different from Yahoo! because they sell products rather than services so it's difficult to compare the two. One thing both amazon and yahoo have in common is consumer trust."

I don't completely agree there. I think every company on a stock exchange( or even in the world ) can be compared to another on basis of it fundamentals and ROIs. These are common charateristics of all companies around the world. They are all around to earn money. On a stock exchange they are mere investment opportunities and one could certainly compare one with another.

I would suggest you look at Ohlson Feltham Model of Company Valuation if you get your hands on it. It is the most valuable learning at B-school for me until now.

-M

[Kwak]

eBay is priced very high also. They are priced high because investors continue to buy their stocks. If no one didn't, the companies would have adjusted their price accordingly.

[Gandalf]

First of all, please excuse my bad English, but I am not a native speaker.

I totally disagree with you. If you estimate the companies mentioned above with the tools provided by fundamential analysis, you will be mislead. All Internet based companies have little or no profits and even less tangible assets. So it is useless to try some indices used for assessing ordinary companies such as GM, IBM e.t.c.
When we talk about Yahoo, Amazon, Ebay and Google we stress more on future potential results, than to actual balance statements.

[YaSO]

When we talk about Yahoo, Amazon, Ebay and Google we stress more on future potential results, than to actual balance statements.
So what should you be looking at then? Revenue growth(rate)? Profit margin? Check with consultants like Gartner?

[Gandalf]

You can look at whatever you want (unique visitors, press releases , etc.). My point is that you can not use fundamential analysis on these companies. May be the only approach to obtain some credible results is to take current price, then calculate the value of the net profits that have to be reached, so that the price of the stocks be real.
When you have the value of the needed net profit, than compare it with the real net profit. Then answer yourself , "Is it possible for this company to reach that kind of growth". To answer this question, you will have to use more "strange" indices than these mentioned above.