Intrinsic value of Changyou.com Limited - CYOU

Previous Close

$18.83

  Intrinsic Value

$39.05

stock screener

  Rating & Target

str. buy

+107%

Previous close

$18.83

 
Intrinsic value

$39.05

 
Up/down potential

+107%

 
Rating

str. buy

We calculate the intrinsic value of CYOU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
Revenue, $m
  640
  703
  769
  838
  910
  984
  1,062
  1,142
  1,226
  1,313
  1,403
  1,497
  1,595
  1,696
  1,802
  1,912
  2,027
  2,147
  2,271
  2,402
  2,537
  2,679
  2,828
  2,982
  3,144
  3,314
  3,491
  3,677
  3,871
  4,074
Variable operating expenses, $m
  480
  525
  572
  622
  673
  727
  783
  841
  901
  963
  1,009
  1,077
  1,147
  1,220
  1,296
  1,375
  1,458
  1,544
  1,634
  1,727
  1,825
  1,927
  2,034
  2,145
  2,262
  2,383
  2,511
  2,644
  2,784
  2,930
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  480
  525
  572
  622
  673
  727
  783
  841
  901
  963
  1,009
  1,077
  1,147
  1,220
  1,296
  1,375
  1,458
  1,544
  1,634
  1,727
  1,825
  1,927
  2,034
  2,145
  2,262
  2,383
  2,511
  2,644
  2,784
  2,930
Operating income, $m
  161
  179
  197
  216
  236
  257
  279
  302
  325
  350
  394
  420
  448
  476
  506
  537
  569
  603
  638
  674
  712
  752
  794
  837
  883
  930
  980
  1,032
  1,087
  1,144
EBITDA, $m
  200
  220
  240
  262
  284
  307
  331
  356
  383
  410
  438
  467
  498
  529
  562
  597
  633
  670
  709
  749
  792
  836
  882
  931
  981
  1,034
  1,089
  1,147
  1,208
  1,271
Interest expense (income), $m
  5
  0
  3
  7
  11
  15
  19
  23
  27
  32
  37
  41
  47
  52
  57
  63
  69
  75
  82
  89
  96
  103
  111
  119
  127
  136
  145
  155
  165
  175
  186
Earnings before tax, $m
  161
  175
  190
  206
  222
  239
  256
  274
  293
  313
  353
  374
  396
  419
  443
  468
  494
  521
  549
  579
  609
  642
  675
  710
  747
  785
  826
  868
  912
  958
Tax expense, $m
  43
  47
  51
  56
  60
  64
  69
  74
  79
  85
  95
  101
  107
  113
  120
  126
  133
  141
  148
  156
  165
  173
  182
  192
  202
  212
  223
  234
  246
  259
Net income, $m
  117
  128
  139
  150
  162
  174
  187
  200
  214
  229
  257
  273
  289
  306
  323
  342
  360
  380
  401
  422
  445
  468
  493
  519
  545
  573
  603
  633
  666
  699

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,659
  1,822
  1,993
  2,171
  2,357
  2,550
  2,751
  2,959
  3,176
  3,401
  3,635
  3,879
  4,132
  4,395
  4,669
  4,954
  5,252
  5,561
  5,885
  6,222
  6,574
  6,941
  7,325
  7,727
  8,146
  8,585
  9,044
  9,525
  10,028
  10,555
Adjusted assets (=assets-cash), $m
  1,659
  1,822
  1,993
  2,171
  2,357
  2,550
  2,751
  2,959
  3,176
  3,401
  3,635
  3,879
  4,132
  4,395
  4,669
  4,954
  5,252
  5,561
  5,885
  6,222
  6,574
  6,941
  7,325
  7,727
  8,146
  8,585
  9,044
  9,525
  10,028
  10,555
Revenue / Adjusted assets
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
Average production assets, $m
  231
  253
  277
  302
  328
  354
  382
  411
  441
  473
  505
  539
  574
  611
  649
  688
  730
  773
  818
  865
  913
  965
  1,018
  1,074
  1,132
  1,193
  1,257
  1,324
  1,393
  1,467
Working capital, $m
  69
  76
  83
  91
  98
  106
  115
  123
  132
  142
  152
  162
  172
  183
  195
  207
  219
  232
  245
  259
  274
  289
  305
  322
  340
  358
  377
  397
  418
  440
Total debt, $m
  64
  130
  199
  271
  346
  423
  505
  589
  676
  767
  862
  960
  1,063
  1,169
  1,280
  1,395
  1,515
  1,640
  1,771
  1,907
  2,049
  2,198
  2,353
  2,515
  2,684
  2,862
  3,047
  3,241
  3,445
  3,658
Total liabilities, $m
  670
  736
  805
  877
  952
  1,030
  1,111
  1,195
  1,283
  1,374
  1,469
  1,567
  1,669
  1,776
  1,886
  2,002
  2,122
  2,247
  2,377
  2,514
  2,656
  2,804
  2,959
  3,122
  3,291
  3,468
  3,654
  3,848
  4,051
  4,264
Total equity, $m
  989
  1,086
  1,188
  1,294
  1,405
  1,520
  1,639
  1,764
  1,893
  2,027
  2,167
  2,312
  2,462
  2,619
  2,783
  2,953
  3,130
  3,315
  3,507
  3,708
  3,918
  4,137
  4,366
  4,605
  4,855
  5,117
  5,390
  5,677
  5,977
  6,291
Total liabilities and equity, $m
  1,659
  1,822
  1,993
  2,171
  2,357
  2,550
  2,750
  2,959
  3,176
  3,401
  3,636
  3,879
  4,131
  4,395
  4,669
  4,955
  5,252
  5,562
  5,884
  6,222
  6,574
  6,941
  7,325
  7,727
  8,146
  8,585
  9,044
  9,525
  10,028
  10,555
Debt-to-equity ratio
  0.060
  0.120
  0.170
  0.210
  0.250
  0.280
  0.310
  0.330
  0.360
  0.380
  0.400
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.570
  0.570
  0.580
  0.580
Adjusted equity ratio
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  117
  128
  139
  150
  162
  174
  187
  200
  214
  229
  257
  273
  289
  306
  323
  342
  360
  380
  401
  422
  445
  468
  493
  519
  545
  573
  603
  633
  666
  699
Depreciation, amort., depletion, $m
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  84
  89
  93
  98
  104
  109
  115
  121
  128
Funds from operations, $m
  156
  169
  182
  195
  209
  224
  239
  255
  272
  289
  301
  320
  339
  359
  380
  401
  424
  447
  472
  498
  524
  552
  581
  612
  644
  677
  712
  749
  787
  827
Change in working capital, $m
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  150
  162
  175
  188
  202
  216
  231
  246
  263
  279
  292
  310
  328
  348
  368
  389
  412
  435
  459
  484
  510
  537
  565
  595
  626
  659
  693
  728
  766
  805
Maintenance CAPEX, $m
  -18
  -20
  -22
  -24
  -26
  -28
  -31
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -84
  -89
  -93
  -98
  -104
  -109
  -115
  -121
New CAPEX, $m
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
Cash from investing activities, $m
  -40
  -43
  -46
  -49
  -52
  -55
  -59
  -62
  -66
  -69
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -106
  -112
  -118
  -124
  -130
  -137
  -145
  -151
  -159
  -168
  -176
  -185
  -194
Free cash flow, $m
  110
  119
  129
  139
  150
  161
  172
  184
  197
  210
  218
  232
  246
  261
  277
  293
  310
  328
  346
  366
  386
  406
  428
  451
  475
  499
  525
  552
  581
  610
Issuance/(repayment) of debt, $m
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  98
  102
  106
  111
  115
  120
  125
  131
  136
  142
  148
  155
  162
  170
  177
  186
  194
  203
  213
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  98
  102
  106
  111
  115
  120
  125
  131
  136
  142
  148
  155
  162
  170
  177
  186
  194
  203
  213
Total cash flow (excl. dividends), $m
  174
  185
  198
  211
  225
  239
  253
  268
  284
  301
  312
  330
  349
  368
  388
  409
  430
  453
  477
  502
  528
  555
  583
  613
  644
  677
  711
  747
  784
  823
Retained Cash Flow (-), $m
  -94
  -97
  -102
  -106
  -111
  -115
  -120
  -124
  -129
  -134
  -140
  -145
  -151
  -157
  -163
  -170
  -177
  -185
  -193
  -201
  -210
  -219
  -229
  -239
  -250
  -262
  -274
  -286
  -300
  -314
Prev. year cash balance distribution, $m
  420
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  500
  88
  96
  105
  114
  124
  134
  144
  155
  166
  173
  185
  198
  211
  224
  239
  253
  269
  284
  301
  318
  336
  354
  374
  394
  415
  437
  460
  484
  509
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  479
  80
  84
  86
  88
  90
  90
  90
  89
  87
  82
  79
  75
  71
  66
  61
  55
  49
  44
  38
  33
  28
  23
  19
  15
  12
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Changyou.com Limited is an online game developer and operator. The Company is engaged in the development, operation and licensing of online games for personal computers (PCs) and mobile devices. The Company's segments include Online Game segment, which consists primarily of PC games and mobile games; the Platform Channel segment, which consists primarily of online advertising services offered on the 17173.com Website, Internet value-added services (IVAS) offered on the Dolphin Browser and RaidCall and online card and board games offered by MoboTap, and the Cinema Advertising segment, which consists primarily of the acquisition, from operators of movie theaters, and the sale, to advertisers, of pre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theater. Its online games include a range of genres, including massively multi-player online role-playing games (MMORPGs), third person shooter games (TPSs) and collectible card games (CCGs).

FINANCIAL RATIOS  of  Changyou.com Limited (CYOU)

Valuation Ratios
P/E Ratio 13.6
Price to Sales 3.8
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow 10.9
Growth Rates
Sales Growth Rate -31.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -63.9%
Cap. Spend. - 3 Yr. Gr. Rate -33%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 35
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 11.6%
Ret/ On T. Cap. - 3 Yr. Avg. 9.2%
Return On Equity 13.5%
Return On Equity - 3 Yr. Avg. 11.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 68.6%
Gross Margin - 3 Yr. Avg. 71.1%
EBITDA Margin 38.1%
EBITDA Margin - 3 Yr. Avg. 27.8%
Operating Margin 24.8%
Oper. Margin - 3 Yr. Avg. 13.5%
Pre-Tax Margin 32.2%
Pre-Tax Margin - 3 Yr. Avg. 20.6%
Net Profit Margin 27.6%
Net Profit Margin - 3 Yr. Avg. 18.4%
Effective Tax Rate 13%
Eff/ Tax Rate - 3 Yr. Avg. 8.2%
Payout Ratio 0%

CYOU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CYOU stock intrinsic value calculation we used $580 million for the last fiscal year's total revenue generated by Changyou.com Limited. The default revenue input number comes from 0001 income statement of Changyou.com Limited. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CYOU stock valuation model: a) initial revenue growth rate of 10.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CYOU is calculated based on our internal credit rating of Changyou.com Limited, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Changyou.com Limited.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CYOU stock the variable cost ratio is equal to 75.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CYOU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Changyou.com Limited.

Corporate tax rate of 27% is the nominal tax rate for Changyou.com Limited. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CYOU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CYOU are equal to 36%.

Life of production assets of 11.5 years is the average useful life of capital assets used in Changyou.com Limited operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CYOU is equal to 10.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1315.357 million for Changyou.com Limited - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 52.468 million for Changyou.com Limited is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Changyou.com Limited at the current share price and the inputted number of shares is $1.0 billion.

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