Real Option Valuation of High Growth Tech Firms

Agnes Malmcrona & Matilda Andersson

Student thesis: Master thesis

Abstract

This study provides an improved valuation approach for high growth tech firms. We identify the shortcomings of traditional valuation methods and discuss alternative valuation concepts by exploring real option theory. By applying fundamental real option techniques, we expand current valuation theory and present a new framework for company valuation: the Extended Schwartz-Moon model. We demonstrate the relevance and validation of the Extended Schwartz-Moon model by applying it to Spotify in parallel to its listing. The case study provides evidence of that high growth tech firms deserve their apparent high valuation if experiencing high enough growth rate in key variables. The improved model thus contributes to firm valuation, both academically and practically.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2018
Number of pages125
SupervisorsKristian Miltersen