Yelp's Analytic Report: Fundamental and Comparables Valuation

Part 1: Fundamental Valuation
discuss the company’s suitable cost of capital at which free cash
flows should be discounted. Compute the company’s terminal value and assess the value of the company under fundamental valuation as a base scenario.
Repeat the exercise but with low-end and upper-end assumptions, based pessimistic versus optimistic
assumptions. A document is posted (“Discount Rate”) to assist you in choosing a discount rate using discount rate by industry in Damodaran’s website (A. Damodaran is a faculty member at NYU and is an international expert on issues that relate to discounting for equity valuation – his book “Investment Valuation” is a fantastic reading if you are interested in having more details about the cost of equity capital). Using the method in the document, you can easily compute the discount factor to be used for the FCF methods. Note that you only need to present on method.
Part2:Comparables Valuation
Value the company using comparables. Discuss which ratios are more appropriate for the business you are
trying to value. What are the costs and benefits of each comparable, and how do they map to elements specific to your business? If you find large difference between the implications of different comparables, which comparables would you trust the most and why? If you find large discrepancies with fundamental valuation, explain which of the two methods you would rely
more on for your particular business.
Part3: Executive briefing
You are working as an equity analyst for a private equity firm with a large stake of 10% of the shares of
the company. The manager of the fund is asking to evaluate whether at the current market price, the fund
should divest its stake or increase its position. Based on the knowledge you have gathered from the company, make a one-page written presentation and gather an estimate for the price per share for the company. Summarize only the main assumptions that play a large role in making this estimate, and provide both a point estimate and confidence intervals.