Compared to the current share price of US$3.7, the company appears quite undervalued at a 49% discount to where the stock price trades currently. The last step is to then divide the equity value by the number of shares outstanding. The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$1.2b. We discount the terminal cash flows to today's value at a cost of equity of 7.5%. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.2%. The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. We do this to reflect that growth tends to slow more in the early years than it does in later years.Ī DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 10-year free cash flow (FCF) estimate We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. To begin with, we have to get estimates of the next ten years of cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. See our latest analysis for Vimeo The Model If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. It may sound complicated, but actually it is quite simple! We will use the Discounted Cash Flow (DCF) model on this occasion. ![]() ( NASDAQ:VMEO) by taking the forecast future cash flows of the company and discounting them back to today's value. In this article we are going to estimate the intrinsic value of Vimeo, Inc. Vimeo's US$3.65 share price signals that it might be 49% undervaluedĪnalyst price target for VMEO is US$6.50 which is 9.7% below our fair value estimate The projected fair value for Vimeo is US$7.20 based on 2 Stage Free Cash Flow to Equity
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