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Most commonly used multiples include price-to-earnings ratio (P/E), price-to-sales ratio (P/S), enterprise value-to-sales ratio (EV/S), enterprise-to-earnings-before-interest-tax-depreciation-and- amortization ratio (EV/EBITDA) etc. These multiples are defined and their relevance for this thesis are discussed below. Price-to-earnings ratio (P/E) P/E is calculated by dividing market price per share to earnings per share from the most recent financial year. It is the most widely used earnings multiple and shows how much investors are willing to pay per dollar of earnings (Damodaran, 2019b). π= ππππππ‘πππππππππ hπππ πΈ πππππππ πππ π hπππ (πΈππ) (3.1) P/E is mostly used for companies that are generating positive earnings and stable profits. However, earnings of Internet companies tend to fluctuate a lot and not all Internet companies are earnings positive at their current stage (Essence Securities, 2018). Thus, P/E is thought not the best metric to use in valuing Douyin. Due to their unique business models, user base and user stickiness are two very important performance indicator for Internet companies. Internet companies make a substantial amount of revenue from advertisements, and these two indicators relate directly to the amount of revenue the company would make that corresponding year (Essence Securities, 2018). In the case of Douyin, a higher number of daily or monthly active users and a higher ratio of DAU/MAU would make the app more attractive for advertisement providers because of potential wider exposure and higher visibility (Cuffe, Narayan, Narayanan, Wadhar, & Wang, 2018). Increasing ad display in turn drives revenue growth, which is then converted to a higher valuation. Moreover, sales value is thought to reflect and take into account market perception and sentiment, leading to a relatively small deviations over time (Klobucnik & Sievers, 2013). Another advantage of using sales as the metric is that it is less dependent on accounting methods and is thus considered to be more objective than earnings, which could be manipulated by the company management (Foye, 2008). Thus, when valuing Internet companies, sales-related metrics are often used, such as P/S and EV/sales. - 22 -PDF Image | Analysis of ByteDance with a close look on Douyin TikTok
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