What are the elements that can be assessed, or which are taken into consideration, when valuing any ’dot-com’ company?

What are the elements that can be assessed, or which are taken into consideration, when valuing any ’dot-com’ company?

First of all, it is important to define what is a dot-com company. Dot-com company is a company that operates the majority or its complete business on the Internet, usually through a website that uses the domain, ".com".

The major difficulty in evaluating these companies relies on the fact that in the majority of cases there are no tangible assets to be assessed, no product that can be tested within the selling market and its shares do not reflect their actual value. Also, because there are historical of valuations inside this type of business, companies can only speculate their value rather than have it spread between shares. When the business is based on a completely intangible service, there is no basis for an assessment of how business is likely to be sold.

However the more acceptable way to assess and proceed to a valuation would be trough checking the traffic that goes into the site per day, or how much adverting can generate. What to me seems hard to evaluate in this cases is the durability of the business as the technological world is in constant change and what is far visit and used today, can be forgotten on another day by any new technology. Is then essential to understand that dot-com companies are always shifting in order to meet the market needs or sinking due to rise of new ideas.

Some companies are very good examples of a previous high market value such as My Space or Bebo, that after a short period of time lost a great market share due to the rise of new competition, such as facebook. Other companies, such as Google, are constantly reinventing and creating new complements to the core business in order to meet the market demands, such as google shopping, google books, gmail, google phone etc.

What is urgent to understand in what refers to dot-com’s is how we can predict its durability and analyze if the bubble involving the business is still growing overall or is about to burst. According to Alan Patrick, co-founder of technology consultancy Broadsight, we are now assisting to the beginning of a new dot-com bubble that in accordance with him develop in 10 stages.

1-    Arrival of a new thing that no one knows how to valuate’

2-    Smart people identify the bubble

3-    Startups with founders deemed to have “pedigree”

4-    Flurry of new investment

5-    Companies start getting fund without having product

6-    MBA start up firms

7-    Big flotation happens

8-    Banks investing pension money

9-    Taxi drivers advice on what stock to buy and

10- New things start buying old companies.

This time social media websites are more valued and Facebook is probably its face and is what is conducted the bubble that according with experts is possibly waiting for phase 9 and 10, what makes hard to evaluate when the bubble will burst. Is that uncertainty and lack of knowledge about these new trends that makes it difficult to evaluate and is the most probable that we will only consider when the bubble burst.

However is true that the dot-com are today stronger that they have ever been before as web users look to them as a new way of communication, what gives them a power that they had before making a more stable investment.