A Real Option Analysis Framework for the Valuation of Internet-Based Companies

Abstract

Internet company valuation has long been considered as a big challenge due to uncertainties. In this paper, a real option analysis framework is proposed to evaluate the value of Internet companies. The proposed framework consists of four steps: strategic analysis, uncertainty analysis, option identification and option analysis. Relative to traditional valuation methods, this proposed analysis framework can investigate the underlying relationships among uncertainty, flexibility and an Internet company's value and thus provide rational valuations of Internet companies under uncertainty.