foxtail said:
MDMAlliance said:
MoHasanie said:
There was a Forbes article a few months ago that valued the Xbox division at $23 billion so it must have some very expensive assets.
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I don't know if $23b means that's how much the assets are worth, but how much the whole division would cost if they were to buy it. I'm pretty sure that a division is worth more than the assets they own. Right?
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That specific evaluation of the Xbox divsion was done Bloomberg and Wedbush and had nothing to do with the Xbox divsion assets.
It was in fact based on a simple 'revenue multiple' calculation using Nintendo's own numbers as a base. Below is the quote from Bloomberg:
| Ballmer’s retirement as chief executive officer may clear the way for a potential spinoff of the Xbox unit to unlock shareholder value. While a consumer success with $7 billion in annual sales, it’s one of Microsoft’s lower-margin divisions and doesn’t drive sales of the company’s core business services and software. Xbox may be worth at least $17 billion on its own, based onNintendo Co. (7974)’s revenue multiple, according to data compiled by Bloomberg. Its value should be even higher given that Nintendo has operating losses, Wedbush Inc. said. |
Below are some negatives about using multiples from wikipedia:
There are a number of criticisms levied against multiples, but in the main these can be summarised as:
- Simplistic: A multiple is a distillation of a great deal of information into a single number or series of numbers. By combining many value drivers into a point estimate, multiples may make it difficult to disaggregate the effect of different drivers, such as growth, on value. The danger is that this encourages simplistic – and possibly erroneous – interpretation.[3]
- Static: A multiple represents a snapshot of where a firm is at a point in time, but fails to capture the dynamic and ever-evolving nature of business and competition.
- Difficulties in comparisons: Multiples are primarily used to make comparisons of relative value. But comparing multiples is an exacting art form, because there are so many reasons that multiples can differ, not all of which relate to true differences in value. For example, different accounting policies can result in diverging multiples for otherwise identical operating businesses.
- Dependence on correctly valued peers: The use of multiples only reveals patterns in relative values, not absolute values such as those obtained from discounted cash flow valuations. If the peer group as a whole is incorrectly valued (such as may happen during a stock market "bubble") then the resulting multiples will also be misvalued.
- Short-term: Multiples are based on historic data or near-term forecasts. Valuations base on multiples will therefore fail to capture differences in projected performance over the longer term, and will have difficulty correctly valuing cyclical industries unless somewhat subjective normalization adjustements are made.
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So basically you're confirming that the value provided up there isn't necessarily based on assets but an analysis on how much Xbox might be worth based off of Nintendo's "multiples"?
