How to value Internet-based businesses Janine Krüger Prof FW Struwig ( Promotor )

1. How to value Internet-based businessesJanine KrügerProf FW Struwig (Promotor)

2. CONTENT • Introduction and background to the study • Previous research in the field of business valuation • Problem statement • Conceptual framework of the research design • Research objectives • Methodology • Secondary research • Primary research • Results • Conclusion

3. INTRODUCTION AND BACKGROUND TO THE STUDY • Businesses start operations from physical premises (brick-and-mortar) • Businesses need to broaden scope for survival and to remain competitive • E-business strategies provide opportunities • Various e-business strategies available • Brick-and-click businesses (online presence to active trading) • Click-only businesses • Small businesses trading using Internet exceeded £1 million in 2010

4. INTRODUCTION AND BACKGROUND TO THE STUDY (cont) • Advantages of using e-business strategy • Brand equity • Strong customer base • Reduction of various costs • Greater exposure into untapped markets • New economy • Intangible or informational elements of products/ services and increase in number of informational activities in relation to number of physical activities • Trends • Globalisation • Information technology

5. INTRODUCTION AND BACKGROUND TO THE STUDY (cont) • Click-only business • Web-surfing highly popular • Social networking fastest growing industry • Mergers of Internet-based businesses • e-Bay acquired Skype Technologies • Google acquired DoubleClick and YouTube • Microsoft acquired Aquantive • News Corporation acquired MySpace

6. INTRODUCTION AND BACKGROUND TO THE STUDY (cont)

7. PREVIOUS RESEARCH IN THE FIELD OF BUSINESS VALUATION • Numerous studies regarding valuation of Internet-based businesses • Damodaran (2000) – obstacles make it difficult to implement traditional methods • Demers and Lev (2001) – use financial and non financial variables (stickiness of website and customer loyalty) • Jensen and Perotti (2002) – highlight financial measures and key financial and non financial value drivers; no support for new methods

8. PREVIOUS RESEARCH IN THE FIELD OF BUSINESS VALUATION (cont) • Forbes (2006) – determine value of business if founder retained within business; result shows no difference • Spratt (2007) – cannot use traditional methods • Mazeruncu-Marinescu and Nijkamp (2008) – variables of traditional methods not available; need an appropriate valuation model • Uzma, Singh and Kumar (2010) and Ali, El-Haddadeh, Eldabi and Mansour (2010) – use DCF and focus on expected cash flow, project risk and intangible risk, but identified determining beta as a major shortcoming

9. PREVIOUS RESEARCH IN THE FIELD OF BUSINESS VALUATION (cont) • Ali, et al (2010) – Monte Carlo simulations in addition to DCF • Stubeji (2010) – Internal value of equity capital not always reliable and suggests that business to be investigated to be compared to foreign businesses • Main problems with valuation of Internet-based business include uncertainty, lack of relevant data, lack of knowledge regarding business, environment in which business operates and that traditional valuation methods ignore intangible assets

10. PROBLEM STATEMENT What valuation model will determine a fair market-related value of Internet-based businesses?

11. CONCEPTUAL FRAMEWORK OF THE RESEARCH DESIGN RESEARCH PROCESS EXPECTED OUTCOME Literature study Internet-based businesses Traditional valuation approaches Qualitative interviews with 10 business practitioners Proposed Internet-based valuation model Design apossible valuation model for Internet-based businesses Test the valuation model for Internet-based businesses (Apply model to one Internet-based business) Testing proposed valuation model

12. RESEARCH OBJECTIVES • Primary objective • Develop a valuation model to determine a fair market-related value of Internet-based businesses • Secondary objectives • Literature review: valuation methods, e-business, valuation methods used in practice • Implement the appropriate research paradigm • Develop a valuation model based on literature and interviews • Test the valuation model for validity

13. METHODOLOGY: SECONDARY RESEARCH • Journal articles (Google Scholar, ScienceDirect, EBSCO and Emerald databases) • Textbooks (NMMU library and inter-library loans) • Printed publications regarding valuation of Internet-based businesses

14. METHODOLOGY: PRIMARY RESEARCH • Qualitative research paradigm to be followed • Content analysis • Population, sample size and sample selection • Participants from international and national accounting practices to be selected using nonprobability sampling • Purposive and snowball sampling

15. METHODOLOGY: PRIMARY RESEARCH (cont) • Measuring instrument • Semi-structured interviews • Credibility, dependability, conformability and transferability of research • Data collection • Personal interviews per prior arrangement with participants • Data analysis • Content analysis

16. RESULT • Use the collected data and literature study to develop a valuation model • Apply this developed model to one Internet-based business

17. CONCLUSION • Still in process of interviewing ... • Any suggestions? Thank you