Case Analysis: BzzAgent Inc. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Case Analysis: BzzAgent Inc. Case Solution

Introduction

The company started its operations in 2002 when the CEO of the company proposed an idea to start an advertising agency using the Word of Mouth (WOM) strategy. The company initially started its operations on a small scale by launching its website and the CEO of the company asked his colleagues to join the company to work with him. The CEO of the company also asked its friend and friends of friends to join the website for free afterwards the company will give them free points which can be used to win exciting prices.

Moreover, the idea of using WOM strategy worked and the company got funds from many sources to spread its operations however, the reason behind choosing WOM was that the CEO of the company believed that the person who is watching many TVCs per day cannot trust of the media while the same person will definitelylisten to his next neighborfor any product and its performance and that’s the concept of WOM. Finally, the strategy of the company worked well and the company started to grow rapidly and now the company is very profitable and considering an equity raise option.

1 Value of the Company, Strengths and Weakness

The value of the company has been calculated using the DCF valuation method (appendix 1) since, other methods of valuation including comparable and asset valuation cannot be used in this case. Therefore, the analyst used the DCF valuation method to calculate the foreseeable future cash flows which can be earned by the company.

For this purpose the analyst used a 10% discount rate (by following a conservative approach) and also used a 2% growth rate mentioned in the case. Afterwards, the FCF (free cash flows) for 2005 and 2006 were calculated and found that the company will have almost 4.6 million of FCF in 2005 and 10.4 million in 2006.

Furthermore, when the analyst discounted these FCF to find the DCF using a 10% discount rate, findings revealed that the company would have almost 4.2 and 8.6 million of DCF in 2005 and 2006 respectively. This shows a wonderful profitability and future growth of the company since, all of the analysis are based on projected financials.

Afterwards, the analyst calculated the terminal value to find out the amount which the company will be able to generate over its expected life using the same discount and growth rate as stated above. Afterwards, the results indicated that the company would have almost 120 million of cash flows over its expected life.

Finally, the investigator calculated the Net Present Value of the company to find out the exact value which the company should receive whenever its going to sell its structure or to spin it off. In a nutshell, results suggested that the minimum value of the company should be 102 million almost as indicate by the NPV. This also indicates that the company is able to earn almost 102 million of discounted cash flows over its foreseeable life.

As far as the strengths and weaknesses of the company are concern it can be said that the first and major strength of the company is its tremendous growth and profitability. Moreover, the company is also deploying wonderful and innovative advertising strategies which are enabling the company to grow rapidly. However, the basic weakness of the company is the increased competition which can lead the company towards low profitability in the future. Conclusively, the firm doesn’t have to worry about it since, this weakness or threat can be easily covered by innovative strategies...................

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