Tom com To Value or Not to Value
Tom.com: to value or not to value? ... That is the preliminary question that Andy Lau faced when he had to deliver professional opinions about investing on Tom: To value or not to value? It is important to consider Tom’s financial history to understand its current impact on its market. Historical Background From its genesis, Tom was created under a different ideal not explored until then. ... com. ... com and sochannel.com (which mimicked radio stations providing entertainment news and music) from Metro, a giant radio-entertainment enterprise. ... Roughly speaking, Tom’s three major targets were 1) the Chinese in China, 2) Chinese-speaking people overseas, 3) non-Chinese-speaking people overseas interested in Chinese culture. Many analysts argued that Tom’s targeting was overbroad and abroad marketing was an expensive undertaking. Despite criticisms, Tom continued on and developed two themes: the “China Experience” and “Lifestyle for Chinese. ... Tom focused on four revenue sources: 1) Advertising, 2) Commission, 3) Content Internet sales, and 4) Content sales through other media. Advertising and Commission revenue were to be procured through traditional models of including third party banners on the Tom Web site. Advertising revenue however was based on the number of hits the Tom Web site had, while Commission revenue was based on the third-party sales actually generated from linking from the Tom Web site. Quickly Tom established five fully functional operating units: Super Channel, Super Web, itravel, ECLink Shenzhen and OneAsia. ... Super Web focused on maintaining on-line information from the Internet radio websites that Tom had acquired. Itravel, which was a joint venture with CTN Holdings, provided a cyber travel agency for Tom users. ECLink Shenzhen provides Tom with Internet security through development of secure electronic transaction platform. ... Tom had three significant shareholders before the IPO: the Li family with 62 per cent, Schuman with 23. ... Tom required, as part of the application, a two year commitment not to sell these shares. Also, Tom acquired a waiver from the Hong Kong Stock Exchange to offer, under a Stock Option Scheme, up to 50 per cent of the shares to its employees. The growth of the Internet seemed to be on Tom’s side, but other problems would soon emerge. ... Although these projections seemed promising, Tom faced some hurdles. ... Tom’s Web site was maintained in Hong Kong and the PRC government regarded it as a foreign site. Valuating dot-coms is not an easy task specifically because of the disproportionate relation between the high market values and the revenues generated by them. ... The basic assumptions made under the Perkins’ studies were that 1) in the next five years Internet commerce will grow phenomenally, 2) after the five year abundance the Internet market will slow down to resemble any other traditional business industry, 3) dot-com investors expect a 15 to 20 per cent return, 4) most Internet companies will suffer a dilution of 5 per cent. ... Under the cash flow analysis, Tom shows an initial negative cash flow because of marketing and development expenses. ... Relative valuation is based from the perspective of the investors in the company and how they perceive it in comparison to the value of other companies. ... Lau initially used the cumulative average growth to assess Tom’s revenue growth, and as his yardstick he used past revenue data, which was more reliable. ... IP Asset Valuation While Lau entertained the idea of investing in Tom solely through one valuation approach, he omitted using an IP Valuation to determine the viability of the investment. True, the balance sheet in Exhibit 1 shows that as of December 31, 1999 Tom’s Intangible Assets were about HK$ 288 million, however, it does not show how much of that number constitutes IP assets.