NEWSWIRE - March 23, 2000

Topic: Stock Valuation for High-Tech Firms

Source: "Tech Lovers Begin to Fret About the ‘V’ Word: Valuation," by E. S. Browning, Wall Street Journal, Thursday, March 23, 2000, page C1.

Synopsis of Article: The article describes the anxiety among investors regarding the valuation of high-tech firms. It underscores the role that growth expectations play in the valuation process. Even some of the more venerable firms such as Cisco Systems, Intel, and Yahoo are trading at prices that are difficult to justify using conventional stock valuation models. The smaller firms with less market presence are even more extreme in terms of stock valuation. Not only do these firms not pay dividends, they often display negative earnings. How do you value firms such as this?

Questions:

1. Why are the traditional dividend discount models so difficult to apply to high-tech stocks?
2. What other approaches are used to value firms such as these?
3. Certainly securities like these are difficult to value, but why is there so much concern regarding their valuations now?