Valuecruncher was at FinovateStartup09 this week in San Francisco.

It was a great event for Valuecruncher.  We met some really interesting people and got to show off what we are doing to a smart connected crowd. We recorded a formal video there which we will link to when it is up on the Finovate site.  But here are some other links and thoughts for now:

Banktastic were providing coverage of the conference and they captured Mark Clare giving a demo of the Valuecruncher service to an attendee.

Mark Clare spent some time talking to Larry Chiang from BusinessWeek.  Larry asked what were the three things he learned at Finovate that he did not learn at business school (the name of his column).  Here is his three – enjoy:

1. To be a successful personal finance management (PFM in the lingo) site you need to have grass on your home page – examples Mint and Rudder (HT: LendingKarma).
2. Speaking of LendingKarma. Even without the MBA I know that LendingKarma and CreditKarma (both participants at FinovateStartup09) should merge for the name synergies alone.
3. That there are sure are a lot of you “English” guys around.  I am from New Zealand.  Literally the other side of the world.

Update: these links are currently down.  We hope to have them back up as soon as possible. 

NZX is the New Zealand stock exchange.  Today NZX placed links to Valuecruncher valuations for the NZX 50 on their website NZX.com.

NZX Summary Page For Telecom New Zealand ($TEL.NZ)

At Valuecruncher we believe research is important for retail investors participating in equity markets.  Retail investors are looking for recommendations and guidance in making investments.  Valuecruncher is very pleased to be making our interactive analyst reports available to a wider audience through our partnership with NZX.

Next week Valuecruncher will be at the FinovateStartup09 event in San Francisco.  Valuecruncher is one of the participating companies.  Valuecruncher is excited to be part of the event.

Mark Clare from Valuecruncher will be in the Bay Area the week of 27 April to 1 May.  He is then going to be in LA (4-5 May) and New York (6-8 May) the following week.

Mark can be contacted at mark.clare@valuecruncher.com.

Today we have launched a new homepage for Valuecruncher.  This is all about our new interactive analyst report offering.

Valuecruncher has interactive analyst reports for 745 companies in the S&P500 (US), FTSE350 (UK), TSX Composite (Canada), ASX200 (Australia) and NZX50 (NZ).

The new homepage makes it easy for you to search for companies that you are interested in or to simply look for companies we think are a buy or a sell.  Our interactive analyst reports are based on a discounted cash flow valuation approach.  You can modify our assumptions and the valuation will be updated automatically. You can also save and share your valuation.

We continue to work out the kinks.  We would love to hear your thoughts.

We have been a little quiet over the last couple of weeks with the blog posts here at Valuecruncher.  We have been working on a new release of our service.  We are now ready to start showing people what direction we are headed.  We have put the new content/format up on the site.  We are still working through some kinks and there will be a new home page up in the next week.

So what is it all about?

The analogy we have used in describing the Valuecruncher offering is painting.  Our offering to date has been the equivalent of providing valuation tools up to the level of a line drawing, where it is then up to the user to complete the painting (valuation).  Users have asked us to take our offering further – to complete the painting and let people play with the finished piece.  That is the key thing we have implemented.  We have also added some additional features to make an interactive analyst report available to users.

Valuecruncher is now providing independent equity research for a range of companies in the S&P500 (US), TSX Composite (Canada), FTSE350 (UK), ASX200 (Australia) and NZX50 (New Zealand).  We are providing a recommendation on these companies.  Independent equity research is important for properly functioning equity markets.  We believe investors (especially retail investors) are looking for independent advice on making investment decisions – especially in times of uncertainty.  Globally the providers of equity research – investment banks, brokerage firms and independent research firms – have been reducing their output.  We are aiming to fill this gap.  Not only to fill the gap – but to make the analysis more interactive.  Letting users play with the assumptions within the valuations.

Here are the key four parts of the new offering.

Recommendation

Valuecruncher provides a recommendation on each company in our data-set.  If our current valuation is above the current share price we say “Buy” – if it is below we say “Sell”.  We have a “Margin of Safety” feature that allows users to determine a contingency they build into the valuations.

Discounted Cash Flow (DCF) Valuation Model

The DCF corporate finance valuation model is the basis of our valuation.  Valuecruncher makes our model transparent and interactive.  Users can change the assumptions and the valuation and recommendation change.  Our assumption numbers are based on consensus analyst estimates.  Sites like Reuters.com provide a resource for users to check our assumptions for key numbers like revenues and profitability.

Comparison Analysis

Valuecruncher has added comparison analysis to our reports.  This analysis looks at how the markets are valuing a company and a peer group based on a range of key financial metrics.  Currently the range of metrics that we measure are limited – we are aiming to extend this.  The peer group of companies is currently determined by an algorithm.  Moving forward we will aim to improve this algorithm and eventually add some user-choice elements.

Sensitivity Matrix

This matrix shows the impact on the DCF valuation of changes in two of the key inputs the discount rate and the terminal growth rate.  This matrix isn’t yet dynamic based on changes to the DCF assumptions.  Currently it is driven off the starting valuation numbers.

This release of the interactive analyst report is significant for the team here at Valuecruncher.  We have released the latest version as early as possible.  There will be kinks and gaps over the near term.  We are looking for feedback.

Presently the offering is free with full (current) functionality.  This will remain for the next few months.  However – moving forward we are anticipating moving some functionality to a subscription service.  Valuecruncher will provide plenty of notice about any changes to the service.  The lawyers have also insisted on us highlighting the expanded terms and conditions and disclosures.

A very talented group of people have worked hard to bring this new release out.  Valuecruncher is very grateful to the core team of JD, Rowan, Jeremy, Sam, Brent and Lance that have all contributed to making this happen.

We hope that you find this useful.

We have been fairly quiet when we have released changes to Valuecruncher.com in the past and thought it was high time that we started sharing more about the enhancements.

Homepage enhancements

Over the last few months we have overhauled the design of the company and valuation pages and it was time for the homepage to get a face lift. In this most recent release we have made the following tweaks:

• A larger list of recent valuations
• More visible help on how to create valuations
• A link to our private company valuation service
• Generally improved the visual appearance of the homepage

Valuation enhancements

Previously, if you updated an existing valuation it would replace your old valuation. We decided it would be more helpful to users to be able to compare new and older valuations they had created and therefore updating valuations will now cause a new one to be created.

Many other small tweaks

There have been many other small changes made around the site that are designed to improve your experience with the Valuecruncher site.

We appreciate any feedback that users have about the site and actively take it into account when planning new features (of which we have many on the way!). Drop a comment and tell us how we could help you better find stocks to buy or sell.

It has been a week of financial market turmoil. The Dow is closed at 8,451 on Friday – over 40% below the 52-week high of 14,279 and down 18% for last week alone. There are a lot of very smart people concerned that the markets and broader global economy are headed for a long-term slump. Within this turmoil there is a lot of discussion about valuation. Here at Valuecruncher we wanted to explain our take on valuation and the analysis we provide.

Here at Valuecruncher we believe that in the long-run markets are broadly efficient – market prices properly reflect the intrinsic value of assets. By intrinsic value we mean a ‘true’ underlying value. However, in the short-term there can be and are inefficiencies. At Valuecruncher, valuation is an attempt to estimate what this intrinsic value is and how it relates to current market prices. At Valuecruncher we do that by calculating a discounted cash flow (DCF) valuation. As we noted, in the longer-term we believe that markets will price assets at this intrinsic value. In the shorter term market prices may differ (either up or down). Our approach is a longer term approach. If someone is looking for a valuation of where a stock will be this week – a DCF isn’t the way to go. However, if you want to understand the underlying value of a stock relative the market price and have a longer-term view – that is where a DCF adds value.

For example: Apple ($AAPL). On 4 June 2008 with the $AAPL share price at US$186.10 our estimate of the $AAPL intrinsic value was US$146.70. By 23 September 2008 with the $AAPL share price at US$131.05 our estimate of the $AAPL intrinsic value was US$163.98. $AAPL closed on Friday at US$96.80. In just over four months the market price of $AAPL has dropped 48% – dramatic times indeed. Our estimate of intrinsic value has changed based on changing assumptions of the underlying business. But what we are trying to estimate is the intrinsic value – and we have argued it is both below and above the prevailing share price of $AAPL over the last four months.

At Valuecruncher we will continue to put out our take on the intrinsic value of companies like $AAPL and how this relates to the current share price. Our on-line interactive valuation models allow anyone to change our assumptions and calculate their own intrinsic value. In our own analysis we are going to try and avoid rhetoric like “buy”, “sell”, “cheap” and “expensive”. Ours is a longer-term analysis. We still believe that in the long-run that market prices and intrinsic value will eventually converge.

Understanding intrinsic value helps us to understand corporate transactions like share buy-backs. It can illuminate mergers and acquisitions activity. It can even expose opportunities to invest (and dispose) of stocks.

After a wild week we expect there are still some brave souls out there trying at assess value.

Like others – we here at Valuecruncher are being asked how we are following the current developments in international financial markets.

There isn’t a single source of information we are leaning on heavily – but we are amazed by the depth of the coverage from a wide range of sources. But such is the financial media scape in 2008.

We are following what we would call traditional financial media such as The New York Times, The Wall Street Journal, FT and The Economist. Interestingly it is totally consumed on-line – print media is just too dated. This was especially true today.

The coverage in the traditional financial media has been generally very strong – but it has been the new media players in the finance space that have been the revelation through this period. Some examples:

Henry Blodget’s Clusterstock has had a reporter in Washington giving sports-style updates and answering questions from readers via comments.

There is fantastic analysis coming from very smart on-line commentators such as Nouriel Roubini, Barry Ritholtz, Paul Kedrosky and Roger Ehrenberg. Some very insightful input is also coming from people commenting on these posts. Before blogs we would never have had access to these types of minds in these situations. Amazing.

There are also access to deep strategic thought on the issues we are facing today – and a track record of asking hard questions before this all began (from April 2008).

Scary times – but we have never been so fortunate in the access to analysis we have today.

With the turmoil in the world’s financial markets over the last few weeks we have been asked why we don’t have valuations of financial institutions here at Valuecruncher.  The last few weeks have actually shown exactly the reason why we don’t.

When we launched Valuecruncher our objective was: “making the valuation methodologies used by corporate finance professionals more accessible to a wider audience”.  To achieve this we provide a three-year discounted cash flow (DCF) calculator.  This approach works well for most companies.  However there are several instances where it does not.  One of these is financial institutions.

For financial institutions (such as Goldman Sachs) a key to understanding their intrinsic value is the value of assets and liabilities held on their balance sheet – in the form of different financial securities.  These assets and liabilities are difficult to value (as an outsider) in normal times – and almost impossible at the moment.  This isn’t the case for a company like Microsoft – where balance sheet items (such as cash) are important but easy to measure.  Microsoft’s value is driven by the cash it generates from selling software – and adjusting for cash and any debt on the balance sheet.  Goldman Sach’s earnings are important – but not as important as changes (both positive and negative) to the securities they hold on their balance sheet.  As the current financial conditions illustrate – the value of these assets can move quickly and dramatically.

Some quick numbers:

Microsoft: 2008 revenues US$60.4bn, operating income US$22.2bn, total assets US$72.8bn, total liabilities US$36.5bn, total equity US$36.3bn.  Market Capitalization US$250bn.

Goldman Sachs: 2007 revenues US$88.0bn, operating income US$17.6bn, total assets US$1,119bn (US$1.1 trillion), total liabilities US$1,077bn (1.1 trillion), total equity US$42.8bn.  Market Capitalization US$54bn (Note: this market capitalisation is approximately 55% of the 52 week high).

Two companies with comparable revenues and operating income (and total equity) – but very different balance sheets.

Valuecruncher will help you to value Microsoft – but not Goldman Sachs.  Here at Valuecruncher we are focused on providing tools for valuing listed companies.  If the tools we provide are not appropriate for a particular company or industry (i.e. financial institutions) then we will exclude those companies.

Note: the other significant industry that we don’t cover at Valuecruncher is natural resources companies.  This is for a similar reason.  The value of natural resources companies is driven by the assets they hold (i.e. oil and gas deposits) not near-term cash flows.  Hence we don’t cover natural resources companies either.

Here at Valuecruncher we have been a contributor to SeekingAlpha for close to 18 months.  SeekingAlpha aggregates on-line finance content fromsources such as Valuecruncher (for US stocks only).  SeekingAlpha then syndicate this content to other on-line finance sites such as Yahoo Finance.

Valuecruncher author page on SeekingAlpha

Because SeekingAlpha has a large audience and host edited copies of our content on their site with the ability for users to comment – we typically see a lot more comments on our content there than on our own site.  For example – this valuation of Apple ($AAPL) has 26 comments.

This week we had a classic comment on another valuation we did on Apple ($AAPL).  The comment was “Valuecruncher reminds me of the Transmogrifier from Calvin and Hobbes”.  We thought this was genius.

So for all those that don’t know Calvin and Hobbes from the great Bill Watterson – the Transmogrifier:

Favourite line: “it is amazing what they do with corrugated cardboard these days”.