Internet Valuations: The Case of Terra-Lycos

12 Pages Posted: 16 Apr 2001 Last revised: 26 May 2019

Date Written: May 23, 2019

Abstract

In this paper, we review twelve valuations of Terra performed by Spanish and non-Spanish bank analysts and brokers.

Of the twelve valuations, only one used cash flow discounting. Another valuation was based on multiples, but also used cash flow discounting to perform a reverse valuation. All others used several multiples. Only one valuation report recommended to sell.

Terra started trading on the stock market in November 1999. The placement price was 13 euros per share (11.81 for retailers). In February 2000, its price stood at 139.75 euros. Between November 1999 and February 2000, Terra provided a return of 975% for its shareholders. However, by December 2000, the share price had plummeted to 11.6 euros, 8.3% of its February high. The average annual volatility of the Terra share was almost 100%.

If you can't find a rational explanation for a share to continue rising, you can be sure that it will fall. To become a millionaire, you must sell your shares at the right time. A website is not necessarily a business. Selling below cost gets you lots of customers, but not much money.

Keywords: Internet, Valuation, Internet valuation

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Internet Valuations: The Case of Terra-Lycos (May 23, 2019). Available at SSRN: https://ssrn.com/abstract=265608 or http://dx.doi.org/10.2139/ssrn.265608

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

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