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MGI Quant

Utilizing the MGI Index and MGI Change Vector in combination with key valuation metrics, MGI Quant helps improve the accuracy of company assessments and provide an independent benchmark of overall company performance. Investors and company executives use them to identify areas for improvement in valuation, operating performance, and bottom line results. MGI core quant data is a major input into MGI Advisory Services and Benchmarking engagements. MGI Quant scores are available for over 500 global technology vendors, and are updated on a continuous basis. Unlimited access is available by Subscription, and select research notes are available in the Research Store. Subscribers get priority access to all published research and data as well as analyst consultation.


Internet Valuation Oct 2013 - What Price is Right?

Internet ValuationThe IPO of Twitter has put a spotlight on a core question:  What is an Internet company worth and what is the right combination of valuation metrics? Why does Linkedin have a higher valuation multipe than Facebook? How much will Twitter be worth over the longer term horizon? Which Internet firms are mispriced?

In this research report we describe a practical formula-based valuation approach for valuing Internet companies of all sizes. Our quantitative analysis indicates that growth is the most important factor in determining valuation of an Internet business.

As of October 29th 2013, shares of publicly traded Internet companies have generated an average YTD return of 58.52%. A number of firms, e.g. Yelp, Trip Advisor and a few others, have seen moves of well above 100%. Internet companies on average trade at over 7X revenue with larger firms fetching multiples north of 11X. Venture funding and secondary market sales of privately held Internet firms are priced generously even for firms that have little or no actual revenue. Any hint at an Internet bubble invites fiery reminders that one is paying for exceptional growth. The purpose of this research note is to identify parameters and metrics that drive valuations of Internet social media companies and provide key holders, investors and bankers with a simple and practical alternative valuation model - not to call attention to inflation in equity prices.

In the Internet and social media context traditional valuation methodologies such as DCF are often unusable. We have applied our Empirical Valuation Modeling (EVM) approach that has been well-tested in the SaaS space to Internet companies. The result is a simple set of guidelines and formulas for valuing Internet businesses. We have previously tested the EVM approach after the Facebook (FB) IPO and at the time generated a price target of $18 – a level that FB eventually not only hit but stayed around for a long time. The EVM approach has proven significantly predictive of take-out prices for SaaS companies with several acquisitions priced within 5% of the target predicted by our valuation model. Some of the SaaS acquisition targets had announcement date pricing moves of up to 40%. This research report describes the methodology, assumptions and results of our application of EVM to the Internet sector, highlights pricing anomalies, provides recommendations for formula use and spotlights the potential valuation of Twitter. We analyzed various operating and valuation parameters of 35 publicly traded Internet firms of various sizes and included data from Twitter data based on its pre-IPO filing.

Attachments: (For Subscribers)
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Download this file (MGI Research INTERNET Valuation OCT 2013.pdf)Internet Valuation Book Oct 2013 - What Price is Right

DELL Go Private Deal - a Reality Check

Historical Valuation Multiples (EV/Sales) of Large Hardware CompaniesThe circumstances surrounding DELL go-private transaction are beginning to erode the company brand equity with enterprise buyers. The Dell Special Committee evaluating offers from a group led by Michael Dell and Silver Lake private equity fund and one from a group led by Carl Icahn and Southeastern Asset Management is under pressure to clearly articulate what is in the best interest of current shareholders, assess the opportunities, spell out the risks and communicate those clearly to holders.

The DELL buyout transaction appears in serious trouble. Both the Michael Dell offer and even the Carl Icahn offer of cash and a stub have failed to stimulate investor animal instincts. The investor apathy translated into a lack of votes and thus postponement of two shareholder meetings.

Cloud Stocks Lagged Market Benchmarks in 1H2013

Cumulative Performance of MGI Cloud30 Index - June 27 2013Given all the industry noise around cloud computing, it may sound counterintuitive that cloud stocks have had a tough first 6 months (almost) in 2013. As of June 27th 2013, year-to-date the MGI Cloud30 Index – a composite of 30 leading cloud companies, has significantly underperformed the broader market averages - up 4.38% vs. 22.42% for the S&P 500. The average cloud equity advanced during the period by only 3%. Breadth has been neutral with half the companies (15) recording a positive performance and half falling during the period. The best performer was Medidata (MDSO), up 93% YTD, with the worst performer being Rackspace (RAX), down almost 49%. However the overall longer term trend for MGI Cloud30 index continues to be up. The cumulative outperformance of MGI Cloud30 vs. the broad market benchmarks like S&P500 also remains dramatic. Since inception in December 2009, MGI Cloud 30 Index is up +126.35% vs. S&P500 is up +49.21%...(more)

MGI Cloud30 Index - Is the Cloud Trend Intact?

MGI Cloud 30 IndexCloud computing has emerged as one of the most dominant and disruptive trends in technology and is the underlying enabler of both social networking and mobile computing. Since late 2009, we have been tracking an index of 30 equities of companies that in our view are strong proxies for the cloud computing trend. In this research note we revisit MGI Cloud 30 Index basics and review its performance. For details, please click here.

Large Systems Vendors Scorecard: October 2011

Our current, October 2011 vendor scorecard provides a qualitative rating for large systems vendors such as Hewlett-Packard, Oracle, Dell, IBM, EMC and Cisco. The note contrasts these ratings with quantitative MGI Index scores measuring business model efficiency and with growth and valuation parameters. The recent upheaval at HP provides an interesting backdrop to our rating scores. With a drop in HP stock, a number of analysts and investors have been turning positive on the company. We think that such enthusiasm is a bit premature. HP's stock is cheap for a reason. In a related research note: "Who Benefits from HP Disarray?" we analyze the opportunities and threats for HP and its peer group.
Attachments: (For Subscribers)
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Download this file (MGI Scorecard - Large Systems Vendors Oct 2011.pdf)MGI Scorecard - Large Systems Vendors Oct 2011

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