Identifying true comparables
While comparables analysis is used in conjunction with some other form of absolute valuation techniques, I was just wondering how ER Analysts with extensive experience use them to supplement their absolute valuation methods for their investment thesis.
So I am trying to find out "true comparables" for firms, in the same industry. To illustrate, take Facebook for an e.g. its very dominant in its industry, safe to say clear monopoly in the Social Media space. Its competing firms IMO would be Google+, Linkedin, may be even Zynga.
But the problem is, while they have some similar characteristics, Google has many other businesses in addition to its Google+ (which is prolly its most useless), Linkedin while it signs up and connects users, but it generates revenue from advertising, fees from recruiters, and membership fees from users. Zynga generates revenue from advertising as well as fees from online gaming.
So clearly, none of the firms in here are what would be called "true comparables". So I wanted to know, what might be an alternate way to identifying comps, and in many cases, they prolly don't have any comparables. So just leave it out??
I would love to hear your viewpoints, and some examples would be great as well. Would love to hear opinions from guys who have extensive comps analysis experience.
Thanks a bunch
Pro tip..... Value is in the eye of the beholder. Comparable valuation models are only 1 value perspective. And there are so many different ways to value cola is with comps
Better to have comparables for/using individual segments if possible. But sometimes there are no true comparables and a company has built a nice moat around its business. Maybe for Facebook there are no true comps.
No extensive comps analysis experience here.
You may want to look outside the US as well. Aren't there any Chinese or Russian facebook-style public companies?
Just a thought, don't know if it helps but if you can't find a local comp then venture further.
Also, look at comparing the business model, not the operating front. What I mean, don't try to compare Facebook with Google+, try to compare Facebook with a company that makes its money through selling online advertising (that's where Google, regardless of the +, comes in).
Obviously you'll not find twin companies, but as long as they face similar risks and business models they are comparable enough.
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