Well, another week has passed, and the idea that I have for my research topic is definitely solidifying. In celebration of this (clearly amazing, awesome, unparalleled) achievement, I'm bringing in two homies from my sources to explain how my research is totally unique and dope.
Jay Ritter: Yo dawgs, my name is homie Jay Ritter, but you can call me Jay R. My partner Kim Moonchul and I did a 1999 study on valuing IPOs using standard comparable firm multiples, like Price to Earnings Ratio and Book to Market Ratio. Basically, we found that although the multiples didn't perform that well in general, using forecasted earnings to value IPOs was waaaaay better than using trailing earnings (historical data) to look at IPOs and attempt to determine their value. Our data looked at A LOT of Software IPOs and Non-Software IPOs, but we didn't really look at any Social Media IPOs because, Guess What? they never existed, so if you're gettin' what I'm puttin' down, and Social Media IPOs are actually different than Software IPOs in a more general way, it could be totally cool to see if the measures we used can be better applied or are generally worse.
Piotr Wisniewski: Yooooooo FAM!!!! I Gotchu!!!!! Guess what Mr. Ritter, the clearly gaping hole with your study in the context of several modern IPOs is answered. I did a really short research project in 2014 on Social Media IPOs and why some of them were successful and others weren't. But guess what??????? I also talked about some differences that Social Media IPOs have to normal IPOs. Social Media IPOs are valued sooooo much more pre-issue relative to their first day closing market price than other IPOs. This means that from the start, there's something different going on with investor sentiment and demand with Social Media firms. In the long run, it seems, like other IPOs, that Social Media firms tend to be overpriced, but unlike other firms, THEY ARE ACTUALLY BEATING THE MARKET. That means that traditional valuation measures for firms might be more effective and telltale of Social Media firms, just by the nature of how these companies invent. A question that could naturally arise out of this is: is forecasted earnings still more effective than trailing earnings? This would intuitively make more sense as these companies are primarily growth centric, but how does this actually play out. Also, if this is the case, at what point (if any) does valuation using trailing earnings become more even or more effective than valuation using forecasted earnings? This could be REALLY USEFUL, because this change seems to suggest a shift in the maturity of the Social Media firm, from primarily a growth firm to a more mature firm. THIS COULD BE HUUUUUUUGE.
That's where my topic and research area comes in: looking at Social Media IPOs and determining whether the valuations like Jay Ritters still work with Social Media IPOs. I came up with the last part of looking at if there is a point at which forecasted earnings become less of a value predictor than trailing earnings for Social Media Companies after watching a few lectures by an NYU professor (Aswath Damodaran) on corporate finance. This topic is getting more interesting by the day, and I really think I have an interesting, rich research area. (552)
Peace Out,
Akash
Jay Ritter: Yo dawgs, my name is homie Jay Ritter, but you can call me Jay R. My partner Kim Moonchul and I did a 1999 study on valuing IPOs using standard comparable firm multiples, like Price to Earnings Ratio and Book to Market Ratio. Basically, we found that although the multiples didn't perform that well in general, using forecasted earnings to value IPOs was waaaaay better than using trailing earnings (historical data) to look at IPOs and attempt to determine their value. Our data looked at A LOT of Software IPOs and Non-Software IPOs, but we didn't really look at any Social Media IPOs because, Guess What? they never existed, so if you're gettin' what I'm puttin' down, and Social Media IPOs are actually different than Software IPOs in a more general way, it could be totally cool to see if the measures we used can be better applied or are generally worse.
Piotr Wisniewski: Yooooooo FAM!!!! I Gotchu!!!!! Guess what Mr. Ritter, the clearly gaping hole with your study in the context of several modern IPOs is answered. I did a really short research project in 2014 on Social Media IPOs and why some of them were successful and others weren't. But guess what??????? I also talked about some differences that Social Media IPOs have to normal IPOs. Social Media IPOs are valued sooooo much more pre-issue relative to their first day closing market price than other IPOs. This means that from the start, there's something different going on with investor sentiment and demand with Social Media firms. In the long run, it seems, like other IPOs, that Social Media firms tend to be overpriced, but unlike other firms, THEY ARE ACTUALLY BEATING THE MARKET. That means that traditional valuation measures for firms might be more effective and telltale of Social Media firms, just by the nature of how these companies invent. A question that could naturally arise out of this is: is forecasted earnings still more effective than trailing earnings? This would intuitively make more sense as these companies are primarily growth centric, but how does this actually play out. Also, if this is the case, at what point (if any) does valuation using trailing earnings become more even or more effective than valuation using forecasted earnings? This could be REALLY USEFUL, because this change seems to suggest a shift in the maturity of the Social Media firm, from primarily a growth firm to a more mature firm. THIS COULD BE HUUUUUUUGE.
That's where my topic and research area comes in: looking at Social Media IPOs and determining whether the valuations like Jay Ritters still work with Social Media IPOs. I came up with the last part of looking at if there is a point at which forecasted earnings become less of a value predictor than trailing earnings for Social Media Companies after watching a few lectures by an NYU professor (Aswath Damodaran) on corporate finance. This topic is getting more interesting by the day, and I really think I have an interesting, rich research area. (552)
Peace Out,
Akash
Can we all just take a moment to appreciate that the NYU prof is named Aswath
ReplyDeleteAppreciating
DeleteAkash, I appreciate your enthusiasm for your sources. I still think, though, that you have the issue of assuming too much knowledge on the part of your reader. as in, I don't know what it means for a firm to "beat the market." I do, though, see that you're saying, "Something unique and unusual is happening with social media firm IPOs," so I can see how you're finding a gap. I just want a little more information that describes what that gap actually means.
ReplyDeleteYooo Akash, what's up? It's great that you're finding yourself at a more solidified research topic, and what I read throughout was super interesting. Alright so now a few questions, which are pretty specific and might require additional research. Firstly, I understand that you want to look into Jay R's valuation models on social media IPOs, but you're going to have to look into so many different aspects of a "successful IPO" because for some companies a "successful" IPO could be where the stock doubles on opening day, as they realize the market values them much higher than what they realized, but for another company, that same conclusion might be bad, as they realize the undervalued their company greatly in earlier rounds. Without a good definition and set of parameters, it might be hard to come to some conclusion. Just something to think about!
ReplyDeleteI mean idk what a conversation really is, but there wasn't much interaction b/w the sources. Yes the second source responded with the Gap and elaborated on Social Media. I understand its tough to create a back and forth when one is farther in the future. I also agree with Amaan, the guy whose dad is the CEO of Sprouts. You may be assuming that stock prices skyrocketing is good for the company, but there may be extreme volatility with these "successful" IPOs. Could these IPO successes mean different things for these social media companies when compared to original IPOs?
ReplyDelete