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

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.