FinTech valuation : is real option valuation a suitable approach to value US listed FinTech companies?

• Autor(a) principal: Saeterboe, Marius
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/29147
• topic: FinTech; Real option; Valuation; Asset Pricing; Risk-adjusted; Capital-Budgeting; Opção real; Avaliação; Preço de ativos; Ajuste ao risco; Orçamentação de capital; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The aim of this study is to assess whether a real option valuation model used on the internet industry is suitable to value FinTech’s. More specifically, try to answer how close or far the estimated firm value is from observed market value disclosed in the financial statement. We argue that commonly used valuation models are limited when it comes to valuation of FinTech businesses. Additionally, we explain that FinTechs are facing many similarities in comparison with Internet companies in the 2000’s. We adopt and apply a real option model, originally developed to value Internet companies, on a U.S listed FinTech, Square Inc. Revenues are imitated and forecasted as a discrete approximation of a continuous time stochastic mean-reverting process. Further, the revenues are risk-adjusted, to avoid the need of estimation of an uncertain WACC, and therefore discounted at an appropriate risk-free rate. The model estimates FinTechs stock prices closer to the traded market price than a traditional NPV DCF-model, since traditional NPV DCFs neglect the value from the flexibility option. Stock prices of FinTechs might be rational if one put a high enough value on the growth of revenues. Notwithstanding that the model requires estimation of many parameters, it is suggested to look closer into how life-expectancy of FinTechs affect the valuation and find a better predictor or proxy.