Research On The Valuation Of Internet GEM Listed Companies

With the continuous breakthrough of China’s IT technology and its economic development,the social informatization is on the right track.The Internet has become an inseparable part of people’s lives.According to the statistics of China Internet Network Information Center,by the end of 2021,China’s Internet users had exceeded 1 billion,making it the country with the largest number of Internet users and the most complete Internet services in the world.The huge demand of end users has promoted the development of Internet companies in China.More and more Internet companies choose to go public to raise funds to enhance their strength and competitiveness.Compared with the Shanghai and Shenzhen main boards,the Growth Enterprise Market(GEM)of Shenzhen Stock Exchange has more relaxed listing conditions,which can provide more effective financing channels for growing enterprises which do not meet the listing conditions of the main board.It has been favored by Internet companies for a long time.Moreover,the implementation of the GEM registration system has further enabled GEM to become the main channel for the financing of Internet companies.However,as Internet GEM listed companies are often more likely to have unstable profits,high proportion of intangible assets and uncertain business model,the valuation of such enterprises are usually more difficult,both in the selection of valuation methods and precision of the results.This has greatly hindered the investments in such enterprises.Firstly,this paper analyzes the common valuation theories such as income method,market method,cost method and economic value-added method,and finally selects the discounted cash flow method and economic value-added method as the main methods for the valuation of Internet GEM listed companies based on the main characteristics of them.Combined with the empirical analysis of data including the free cash flow,economic value added and market value of the industry in the past 3 years,it is concluded that the market value of Internet GEM listed companies has a strong positive correlation with the free cash flow and economic added value.At the same time,the correlation between free cash flow and enterprise market value is significantly greater than economic added value.Lastly,the paper selects Hubei Century Network Technology Inc.as a specific case for valuation.The valuation results show that the discounted cash flow valuation method is more accurate than the economic value-added method,which has obvious underestimation.The sensitivity analysis results also show that the fluctuation range of the valuation of the discounted cash flow method is also smaller.Therefore,for Internet companies on the Growth Enterprise Market,the discounted cash flow method is the best choice for valuation.