1. 1 Dr. KOOP Valuation Professor Joshua Livnat, Ph.D., CPA 311 Tisch Hall New York University 40 W. 4th St. NY NY 10012 Tel. (212) 998-0022 Fax (212) 995-4230 jlivnat@stern.nyu.edu Web page: www.stern.nyu.edu/~jlivnat

2. 2 Valuation Approaches E-Tailers: –Project the entire market potential Use current market size Assess growth of the market due to online purchasing –Estimate market share –Using predicted profitability, forecast future cash flows –Discount to present

3. 3 Valuation Approaches Reverse auction and market making: –Typically, transaction-based fees –Assess market size Use historical growth rates Conform to overall market potential –Predict fees based upon market size –Using estimated profitability, assess future cash flows –Discount to present

4. 4 Valuation Approaches Entertainment/Content: –Determine revenue sources Advertising Referral fees Pay per use –Predict growth in visitors/members –Predict growth in revenues –Predict future expenses and cash flows –Discount cash flows

5. 5

6. 6 Regression of Revenues on Visitors

7. 7

8. 8 Regression of Content on Visitors

9. 9

10. 10 Regression of G&A on Reach

11. 11

12. 12 Regression Sell&Marktg on Reach

13. 13 Steady - State Operational Model Revenues –We use the regression result $1.6 MM (quarterly) per 1 million visitors. Content expenses –Regression results make sense. We use fixed ($1MM) and variable ($1.4MM per 1MM visitors) components. General & Administrative expenses –Regression results make sense. We use fixed ($0.54 MM) and variable ($1.39MM per 1MM visitors) components. Selling & Marketing –We use variable costs of $2.2 MM (quarterly) per 1MM visitors plus fixed costs of $1.1 MM.

14. 14 Operational Model 3MM/quarter.Revenues are determinedas Square(Reach)*$1.58MM3MM/quarter.Revenues are determinedas Square(Reach)*$1.58MM

15. 15 Prediction Model

16. 16 Value !!! Assumptions: 1.Financing can be obtained in 2000-2003. 2.Number of shares remain the same.

17. 17 Qualified Audit Opinion New Financing

18. 18 Summary Advertising revenue model will not be long-term viable unless the company can sign up partnership – unlikely given the lower traffic. Probability for significant E-Commerce is low. Expenses are too high. Volume analysis at current levels indicates failure. Cash flow shortages in the next 4 years. Low price per share even if company survives and generates positive cash flows.