Thursday, June 9, 2011

There is an app for that....

I have a healthy respect for technology. While I don't see it as the cure for any of our problems in valuation, it has made life a lot easier in terms of mechanics. I still remember trying to value companies in the mid-eighties, where data had to be collected by hand (in libraries) and computers were primitive (I started with Visicalc on a Kaypro and it was just a glorified hand calculator, with limited features). I have tried to stay on top of evolving trends, though I have never been cutting edge on any dimension.

As I watch my kids and colleagues increasingly abandon their computers for their smartphones and iPads, I have wondered whether I could make this transition. Thanks to Anant Sundaram, my good friend, who teaches valuation at Dartmouth College, the first step has been taken. Together, we developed a valuation app for the iPad that allows you to value a stock or a business. A confession is in order. Neither Anant nor I have the technological capability to write apps: it is a lot more complicated than it looks. We owe aa great deal to Xiandong Ren, a graduate of the Computer Science department at Dartmouth College, who schooled us on the basics and wrote the code for the app. Initially, we wanted to give the app the moniker of "iValue" but as is common in this space, some one else beat us to that name by a few weeks. So, we used our fall back name for the app: uValue and it is now available on the Apple iTunes store:
http://itunes.apple.com/us/app/uvalue/id440046276

uValue is a valuation app, with surprising versatility (or at least, we think so). There are three basic models - a conventional cost of capital DCF model, an Adjusted Present Value (APV) model and a dividend discount model. For the cost of capital and APV models, we have detailed versions, where you are given full control over all of the input levers, and simple versions, where we set many of the input levers to safe defaults. In the near future, we hope to add a relative valuation (multiples and comparables) module as well as a financial tools module. Embedded in the app is a short book on valuation (called the uValue Companion) that leads you through the basics of which model to use in a specific context and the fundamentals of that model as well as data sets on industry averages on key input variables (margins, returns, betas, cost of capital etc.).

While we cannot be objective about the app's capabilities, here is what we see as its pluses and minuses right now. On the minus side:
a. The app is available only for the iPad right now. The output is too intensive for a Smartphone screen and we just don't have the capacity or energy or time (right now) to write the code to allow it work on Android pads.
b. It is a young app. We have already been alerted to a couple of errors in the app (the simple APV has a glitch in the expected bankruptcy cost component, for instance) that we will fix in the next update (in the next couple of weeks). This website for the app will keep you updated on errors as you find them (and we fix them):
http://uvalueapp.com
c. It does incorporate our "points of view" on DCF valuation, which may not map on to your points of view on the same. Just to make you feel better, even Anant and I have differences on individual components (like what to use for the equity risk premium) and have been open in laying them out in the app.

On the plus slide, we have tried the app out on all kinds of companies: young, growth companies (like Linkedin), mature companies, money losing companies, commodity companies, financial service companies, and it seems to work for all of them. Best of all, check out the price for the app. You will see why we feel absolutely secure in our "money back" guarantee...   

17 comments:

notswimmingnaked said...

sounds very interesting. Is there historic financial data for the companies in the app? Or do you pull it from a specific online source?

DBogs said...

This is the best technology news since the first iPod was released.

Aswath Damodaran said...

No historical data on the app itself. That would make it too big (Apple has a limit on how big an app can be...) That has to be pulled from somewhere else.

Jay Kashin said...

Introductionary uValue videos..

http://www.youtube.com/watch?v=xtD0RMhNGCo
http://www.youtube.com/watch?v=XLFD1ErWZMw

Nick Lewandowski said...

Really cool! Wish I could afford an iPad... Major props for making resources like this available for free.

Jaffar said...

Professor,

Your innovation presents me with a number of challenges...

- An ethical one: do I buy an IPAD for my wife's birthday next month and "borrow it" ?
- A financial one, do I but two IPADs?
- An opportunity cost, not buying any

In any case, I believe this is a very neat and disruptive innovation. The next shoe to drop will be to see whether/how you monetize it. Best, Jeff

Mr. Y said...

Thank you Professor, this would surely help me in my new job!

Aswath Damodaran said...

Jaffar,
I am afraid I have to leave the ethical decision to you but monetizing the app is really low on my priority list (In fact, its not even on the list). That does make it a lot easier for me...

Bah, M said...

Thanks for the app and thanks for the website. For me it is a must read.

Mike said...

Prof, Great job.. Thank you for providing this nice educational tool.

Can you help those people who can not afford an Ipad? i.e., can you port this to a browser based application for IE and Mozilla?

Perhaps you already have a computer science student working on this.

Just wanted to commend you and provide a suggestion. If I get a response, I will consider as a bonus..

Aswath Damodaran said...

Mike,
In terms of priority, we will first shoot for an iPhone version (since the code is very similar), then start thinking about an Android version. Porting it to a PC will require a complete rewrite but may not help that much - I have a website with excel spreadsheets that already do all of the stuff this app does and more online.. (Check out the website for my Little Book)

admin said...

"[...] we just don't have the capacity or energy or time (right now) to write the code to allow it work on Android pads." //

this is really a bad news !

yellowbear said...

Professor, this is awesome. Very innovative and I am absolutely delighted. If you release the iphone version, i would buy it in an instance!

Daniel said...

Hello Prof,

I am an Australian resident and naturally most of my investments are of Australian (or dual) listed shares. I was wondering therefore if the App was targeted to US listed companies only or can we use it to value any company in any market?

Great work btw

Aswath Damodaran said...

Should work for any company, anywhere.

Dgani123 said...

So is it not possible to use this on a macbook?

This is pretty cool. I am just getting into this stuff!

Aswath Damodaran said...

You don't need an app for a PC or a Macbook. Just use Microsoft Excel. It is far more versatile and powerful than any app...