Discussion of Valuation of Internet Stocks—An IPO Perspective

Abstract

The discussion reviews BMS’s analysis of how summary financial data from the IPO prospectus are associated with the IPO offer price and the initial market price. The authors focus on whether the value drivers associated with these prices differ between internet and non-internet firms, and between the offer price and the day one ending price. They conclude that there are differences in the value drivers used to value Internet versus non-Internet firms, and further differences in the value drivers used to arrive at the offer price and the day one ending price. The review raises several concerns about these conclusions. One concern is that the reader confronts a challenge in trying to interpret the differences between the value drivers affecting the offer price and the day one ending price. The review discusses two factors for the reader to consider before interpreting these differences. The review also critiques the paper’s avoidance of disaggregated financial statement information in the value driver analyses and details several research design concerns.