
Ask YC: What is a website worth? - modoc
I've been approached by someone who would like to buy http://10minutemail.com (disposable e-mail addresses for spam avoidance) from me.  
It was just a fun project for me, but did pull in a fair bit in google ad revenue over the last 12 months.  
The site gets about 2 million page views a month.  
Is there a calculation on what a site like that would be worth, based on traffic or current ad revenue or something else?  <p>Regards,<p>Devon
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jorgeortiz85
Bond yields are a little fucked up right now (thanks, credit crunch), but they
provide a way to figure out an investment's valuation.

Let's assume the 1-year government bond yield is at 5% (it's not, but it
simplifies the math, so bear with me). As a gross oversimplification, that
means that a $20 investment today will produce a risk-free return of 5% ($1)
at the end of a year. The converse is also true: if a risk-free investment
produces $1 in revenues over the course of a year, then the investment should
be valued at $20.

So, if your website was risk-free, it'd be valued at ~20x your yearly earnings
(after-tax net profit).

Of course, it's not risk-free, so that will discount the price.

On the flip-side, it has potential for growth, so that will increase the
price.

For comparison, other tech companies trade at:

Microsoft: 23x earnings

Yahoo: 46x earnings

Apple: 47x earnings

Google: 53x earnings

Salesforce: 688x earnings

Facebook: 500-1000x earnings
([http://blogs.reuters.com/mediafile/2007/10/25/keep-an-eye-
on...](http://blogs.reuters.com/mediafile/2007/10/25/keep-an-eye-on-
facebook-4/))

1000x earnings is what Yahoo was valued at in 2000. That's probably a max on
what you can ask for :). Given your growth potential, I'd say 20x earnings is
probably a min.

Good luck!

~~~
socmoth
could your elaborate on the following paragraph? i'm not sure how something is
worth 20 dollars because of 1 dollar yearly revenue. what assumptions are you
making?

Let's assume the 1-year government bond yield is at 5% (it's not, but it
simplifies the math, so bear with me). As a gross oversimplification, that
means that a $20 investment today will produce a risk-free return of 5% ($1)
at the end of a year. The converse is also true: if a risk-free investment
produces $1 in revenues over the course of a year, then the investment should
be valued at $20.

~~~
brianr
That calculation assumes that the risk-free rate is 5%, and that you will get
$1 per year forever (i.e., considering the company to be an annuity that pays
$1 per year forever). A more general formula is:

Value = (Annual revenue) / (interest rate - growth rate)

The interest rate here is the interest rate that takes into account how risky
your business is--the rate you'd be able to borrow at, the "cost of capital".
Let's say you could get a loan (secured only by the assets of the business) at
15% interest, and that you expect to grow by 5% per year. Then per $1 of
annual revenue:

Value = $1 / (.15 - .05) = $1 / (.1) = $10

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shimon
A baseline, if you have predictable revenues, is the Net Present Value of
those revenues. Basically you treat your business as a machine that produces
money on a schedule, like an annuity.
<http://en.wikipedia.org/wiki/Net_present_value>

Of course, you'll need to adjust for (1) risk and (2) growth. If your buyer
has better ways of utilizing your website in their business than your ad
revenues, that can increase the value of your site to them. For example, if
your buyer is a spammer himself and wants to use 10minutemail.com to deceive
people and harvest the addresses of people who go to great lengths to avoid
spam, and those addresses are worth $1 each to him, then you should include
that "revenue" stream in calculating your site's present value.

On the other hand, things could get worse for your business, and any risks
will be reflected in the price. Some risks are very hard to price, which is
why it's much harder to sell a company that e.g. looks like it's going to get
sued.

If you're not an experienced negotiator, be careful not to sell yourself
short. If you have to throw out the first number, you want it to be as high as
it can possibly be without causing the buyer to hang up immediately.

Good luck!

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pistoriusp
10 minute email... Why stop at 10 minutes! What about 5 minute email? ;)

~~~
tptacek
No! NO NO NO. Not 5. He said 10. Nobody's doing 5. Who uses email for 5
minutes? 10's the key number here. 10 commandments! 10 doors! 10, man, that's
the number. 10 chipmunks twirlin' on a branch eatin' lots of sunflowers on my
uncle's ranch! Step into my office!

~~~
thomasswift
When the comment above this is what I thought of, but didn't post it, I
thought it didn't 'add' to the conversation, but whatever, I don't know the
source of this saying is but it reminds me of the hitchhiker in Something
about Mary.

Hitchhiker: Step into my office. Ted: Why? Hitchhiker: 'Cause you're f __*in'
fired!

~~~
tptacek
Yeah, that's where it's from.

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bkbleikamp
I have sold a few small websites and have gotten between 15-30 months of
revenue in the sale.

~~~
wmeredith
Ditto.

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iamelgringo
Ultimately the site is worth whatever you get paid for it.

To get an idea of what others are getting for similar sized sites:
<http://www.sitepoint.com/marketplace/> . I really haven't seen another market
for small companies like sitepoint's.

Mind you, this is just from poking around on sitepoint's site, but from what I
understand 1-3x annual earnings is fairly typical for companies like yours.
But, it also depends on what your page range is, how many different sources of
revenue and traffic you have.

For instance, a company with a high page rank one search engine will be worth
less than a company with a high page rank on all 3 major search engines. High
page rank on multiple engines means multiple sources of traffic and your site
is less likely to suffer next time one of the engines reshuffles their
rankings.

Also, if you have multiple streams of revenue, that increases your valuation
as well. For example, if all of a site's revenue is coming from Adsense, then
the site tends to be valued less than if you have multiple streams from
different sources. If you're using some affiliate networks, direct advertising
as well as Adsense that increases your multiples. Why? Because your revenue
stream is diversified and less likely to suffer suddenly.

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bayareaguy
I have no idea what your service is worth, but I'm a happy user of it.

I have my own bsd mail server and before I found out about your site I would
simply edit /etc/aliases, register somewhere, get the confirmation and then
delete the alias. That still took a minute or so and required me to have
access to a root login. Your site works almost as well and is much more
convenient. Since I've discovered your service, I've used it plenty of times
and have shown it to several friends.

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jagjit
Careful investors do not generally value companies based on revenues or
earning potential in future - they first find the worth based on the current
earnings or assets. But then again internet startups are not usually evaluated
for their worth by careful investors.

EPV (Earning Power Value) is a good way to calculate the worth of the company
based on the earnings. EPV = Earnings/cost of capital

So if the company can raise money at 10% interest, then the EPV will be 10x
its earnings.

Please take the above with a grain of salt. You should value it as high as you
can negotiate. It will help if you know what the buyer plans to do with your
site - that is an important factor that raises the valuations of web startups.
Youtube or facebook get such crazy valuations not for their profit potential
in isolation but based on the plans of their acquirers.

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ALee
So, the calculation you want is called a valuation. There are a number of
different methods, but all are based on particular assumptions. You can either
base it on cash flow or EBITDA. So essentially you have three parts that are
factors in the calculation: (a) the sum of current and future earnings divided
by the cost of those operations, e.g. over five years, what is the return on
this website (b) time period for estimate, e.g. how long will 10minutemail
last? (c) discount rate to dampen those estimates, e.g. how likely are these
scenarios to occur?

Check out this article and you should easily be able to do it:
[http://en.wikipedia.org/wiki/Valuation_using_discounted_cash...](http://en.wikipedia.org/wiki/Valuation_using_discounted_cash_flows#Using_the_DCF_Method)

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jdavid
I have always heard that it depends on what type of company you are.

Service based companies will trade at less than 1x yearly revenue. An example
of this is if you were to sell a consulting business.

Product based companies will trade somewhere at 2-10x annual revenue. This is
like a toy company.

Product based service companies like Netflix seem to trade at 10x plus
depending on the stickyness of your service and how much lock in you have.
Netflix offers monthly subscriptions, where your site is based purely on
advertising which may have better adoption rates, but lower buy in rates.

The lack of customer buy in is a huge problem with many web2 ad supported
business models.

Salesforce.com has amazing buy in, it changes your company culture when you
start using the software, plus you pay yearly for it.

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drubio
For ad based/impression revenue, using the Google Firefox/Toolbar referral fee
is a good rule of thumb.

For Google, each user that installs the F.F/Google Toolbar, and hence will be
exposed to ads each time they search the web is worth $1 Dollar, or at least
that's how much they are willing to pay for each user having Google as their
default search engine.

So I would say $1 Dollar per signed-up user, +/- fudge factor if you really
have or haven't additional leverage on your users.

~~~
SwellJoe
"So I would say $1 Dollar per signed-up user"

This makes no sense for an anti-spam service. They aren't "signing up", they
are "opting out" of all future emails from whatever they are using the email
for...so this user will probably come back, but if you spam them even once,
you've lost them for life. They aren't the same as "signed up" users for a
toolbar or installations of software.

This is a pure ad play, in its current form, and has revenues from that
source. There might be ways to integrate this with other anti-spam, anti-
malware, privacy, whatever, features to build a product suite that is worth
more than the sum of its parts, but right now it's an ad-supported model.

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modoc
So a 1X or 2X of annual ad revenue is standard valuation?

~~~
ericb
I think it's usually a 1x at the smaller scale. I would take a look here for
comparables:

<http://www.sitepoint.com/marketplace/>

Since the other party sought you out, don't feel the need to discount too
much.

~~~
ericb
For folks doing simple net present value valuations, please keep in mind that
small businesses and small websites are a different world. Most require work
and promotion to maintain. Thankfully, IRobot, whose stock I own a few shares
of, has never asked me to run an adwords campaign, pay their hosting bills or
do their customer support. Selling a small business is often like selling a
job.

Take a look at the sitepoint marketplace at closed sales and see how many you
see going for 10x multiples. In terms of selling, the value of any business is
exactly what the market will pay.

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DaniFong
A useful framework is that companies should be valued at all future profits,
adjusted for inflation and risk

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Zak
Obviously. The problem here is estimating profits and risk.

~~~
DaniFong
I hope it was 'oh, that's obvious' rather than 'duh... obvious'. I mean, many
people just try to evaluate the dream. Others try price earnings ratios. But
rarely do I hear mention of this type of analysis, so I decided to mention it.

~~~
Zak
It's the latter, but my comment was directed against the great number of
people who fail to understand that all sensible ways of pricing a business are
just attempts to estimate its future earnings and liabilities.

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dingosa
That depends:

What are your current ad revenues like? How many uniques per month? How many
email addresses created so far?

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ochiba
I think what davidw meant was that you should monitor your ad revenue of a
year or two and then project your future profits (as DaniFong said), adjusted
for inflation, and base your valuation on that

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davidw
You could look at current ad revenue over a year or two.

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henning
It is worth exactly $7,328.91. Not a cent more or less.

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mattmaroon
$8

