Session 23: IPO Valuation and first steps on Real Options

Aswath Damodaran
Aswath Damodaran
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Published 2021-04-21
We started today’s class by looking at IPOs, and how to incorporate both the proceeds and the pricing considerations of bankers (who guarantee an offering price) as well as how VCs and PEs may look at firms during their transitions. Along the way, we had a discussion of direct listings as a challenge to the IPO process and
aswathdamodaran.blogspot.com/2019/10/disrupting-ip…
We then started on the real options discussion with an analysis of the two driving forces behind their value: learning and adaptive behavior, and then moved on to the three questions that need to be asked and answered before buying into the real options argument:
1. Is there an option embedded in an asset? (Look at the cash flow payoffs)
2. Does that option have value? (Is there exclusivity?)
3. Can you use an option pricing model to value that option? (Are the underlying asset and option traded)

Start of the class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/pvtco2…
Slides: www.stern.nyu.edu/~adamodar/podcasts/valUGspr21/se…
Post class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postcl…
Post class test solution: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postcl…
All Comments (4)
  • @r.a.p.h4481
    Timestamps 0:49 Start of the class test PRIVATE COMPANY VALUATION 8:24 III.Private company for initial public offering 8:58 Twitter Pre-IPO Valuation 11:00 The twists in an IPO 12:55 A. Use of the Proceeds 12:24 The IPO Proceeds: Twitter 15:10 B. Claims from prior equity investors 15:48 The claims on Twitters equity 17:35 C. The Investments Banking guarantee... 18:46 Pricing versus Value 19:48 The evidence on IPO pricing 20:29 An investment opportunity? 23:39 Alternatives to IPOs 36:59 IV.Private to VC to Public offering... 38:38 To value this company... 40:09 Implications 42:22 Private company valuation: Closing thoughts 43:35 REAL OPTIONS 44:55 Underlying Theme: Searching for an Elusive Premium 45:52 Decision Tree Example 50:12 Three Basic Questions 52:05 (1) When is there an option embedded in an action? 53:07 Payoff Diagramm CALL 53:36 Payoff Diagramm PUT 54:09 (2) When does the option have significant economic value? 55:48 Determinants of option value 1:01:15 (3) When can you use option pricing models to value real options? 1:03:41 Creating a replicating portfolio 1:04:33 The Binomial Option Pricing Model 1:11:36 Black and Scholes...
  • @amanjha9945
    Prof. Damodaran are you also planning to make a video on the current SPAC's mania? Also, the IPO of Coinbase.
  • @hritikgahlot19
    Sir for some reason I get anxiety when you ask about the assignments 😂😂