Even though the `blue-sky bubble` of the dot-com boom burst four years ago, these new-economy stocks are not completely down-and-out. A handful survived and a new breed has sprung up.
Despite the residue of scepticism that was brought about by the spectacular crash, as e-commerce continues to accelerate in adoption around the globe, dot-com companies are going to remain critical players.
But analysts, investors and accounting firms are perhaps going to have to assess their values using different methodologies, including looking at the intellectual capital inherent in the company.
This is according to Douglas Reed, MD of premier Internet service provider (ISP), DataPro. Reed said technology businesses such as DataPro might need to be viewed "slightly differently" - certainly from an investor and evaluation point of view.
"Given the nature of technology companies, they may need to be evaluated using different yardsticks. In fact, this could be true of almost any company."
Reed said most of these companies` assets are intangible. This is often especially true of dot-com companies. "When looking at the balance sheet of such businesses you might not fully grasp their real value - its people, particularly its leaders. It is due to this intangible source that the company is likely to succeed or fail.
"While it is also important not to forget the more traditional business principles when making investment decisions - especially when it comes to the more risky dot-com arena - it is also perhaps prudent to look behind the balance sheet and find out which personalities are the driving forces. The value they bring to the company might be the catalyst that is required to turn the company from a start-up to a behemoth."
Reed said technology companies often come to the market with an idea, or a collection of ideas. While the balance sheet might look a bit threadbare, and carry very little hard currency value, it is the ideas that could end up earning billions of rands for the company.
This new concept of placing a value on people skills and ideas poses a particular headache for accounting firms. "The big question, of course, is if we are going to see a whole new school of thought emerging - a school of thought that will move to place a rand value on the heads of key staff. And then, how to reflect this in the balance sheet? It`s bad enough placing a value on a company when it comes to a possible merger or acquisition. But what formula is used when evaluating people and ideas?
Christopher Riley, the owner of notebook and accessories retailer, The Notebook Company, concurred with DataPro`s Reed, saying key staff members add value to companies and should, therefore, be "reflected somewhere" - either on the balance sheets or in "some kind of separate in the notes to the financial statements or announcements".
"If one takes the case of Virgin Atlantic and its founder, Richard Branson, what would the banks do if something were to happen to him? Branson, effectively, is Virgin. What value does he bring to the brand? If he were incapacitated, or died, what would happen to the value of Virgin Atlantic and all the other companies Branson has control over? Would banks feel comfortable without him - would the market in general?
"This is perhaps an extreme example but it does illustrate that individual people can command a high value and, at the end of the day, it is not that intangible. It can become very tangible. What would happen if Jeff Bezos from Amazon.com were to leave the company under a cloud? Market sentiment might be mixed but it is very likely that a noticeable portion of the company`s market capitalisation would be wiped out almost immediately."
Reed commented that the marketplace, as a whole, might have to take a totally different view of the dynamics. "Maybe some brave analyst out there - or some real financial icon, such as Buffet - will give birth to some new financial acronyms. After all, listed companies in SA are now being compelled to adhere to - and report on - a social responsibility index, taking into account the impact of social issues, such as the cost of AIDS.
"So why can`t other important aspects be more measurable?"
Share
Editorial contacts