Internet Valuations: The Case of Terra-Lycos

12 Pages Posted: 16 Apr 2001 Last revised: 22 Nov 2015

Pablo Fernandez

University of Navarra - IESE Business School

Date Written: November 21, 2015

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 (November 21, 2015). Available at SSRN: https://ssrn.com/abstract=265608 or http://dx.doi.org/10.2139/ssrn.265608

Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

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

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