Re:Ask HN: How to do proper valuation of a web appliation?
by patio11 on Sunday March 20, 2011 @11:48PM
(#2348368)
A web application's worth is the price at which a buyer and seller mutually agree to sell it. That isn't the answer you want, but it is correct. There are a variety of factors which can increase or decrease that number:
1) Is the person selling it unsavvy about business? Just like engineers suck at salary negotiations and end up working for $45k, if you suck at negotiating sales price, that has an outsized impact on value relative to any objective factor.
2) Does it solve a strategic need for the acquiring company? For example, if you're Google, it isn't maximally relevant to you that an acquisition target "only" has 10k users, because you're going to put Google Muscle behind it and distribution is trivial to you. If it solves a problem for, e.g., AdWords adoption in a particular vertical, like say local, valuation is utterly unconnected to current revenue/users/etc. (A foreign telecommunications firm put in a fairly generous offer for Appointment Reminder when it had no customers and no revenue, with the intention of slotting it straight into their product lineups.)
3) Failing the strategic acquisition factor, some web apps (typically ones you won't read about in the newspaper) are sold as turnkey businesses. Valuations are generally based on a multiple of the last year's profits, with the multiple sensitive to the amount of risk, etc. If I sold BCC on Flippa, for example, I could reasonably expect to get ~$25k for it: a wee bit less than 1X last year's profits. $50k would be pushing it. Nobody in their right mind would pay $100k for it if they were just intended on keeping it running as it is.
4) Are there multiple prospects to play against each other? Bidding wars raise prices, sometimes very significantly.
5) Is the app in a "rich" vertical? There are occasionally examples of heavily undermonetized web sites bought for anomalously high sums of money. Some SEO friends of mine love taking people's hobby projects and bolting on effective monetization. If there is an obvious route to this, then the fact that current revenues are terribly might not necessarily predict a 1 * $TERRIBLE sales price.
6) How risky is the web app's current position? Is it highly dependent on a single source of traffic (cough Google)? Is it highly dependent on a single source of traffic and has it gotten that traffic through grey hat tactics which could be discovered at any time via manual or automated review? Is it in a declining field? Is it in a rapidly evolving field where competition could reasonably be expected to eat its lunch?
7) What are the upkeep expenses, including fair market salaries for employees for any skills needed? Just because my time is free to me doesn't mean the Rails programmers and SEOs that the company grabbing any of my sites will need are also free.
1) Is the person selling it unsavvy about business? Just like engineers suck at salary negotiations and end up working for $45k, if you suck at negotiating sales price, that has an outsized impact on value relative to any objective factor.
2) Does it solve a strategic need for the acquiring company? For example, if you're Google, it isn't maximally relevant to you that an acquisition target "only" has 10k users, because you're going to put Google Muscle behind it and distribution is trivial to you. If it solves a problem for, e.g., AdWords adoption in a particular vertical, like say local, valuation is utterly unconnected to current revenue/users/etc. (A foreign telecommunications firm put in a fairly generous offer for Appointment Reminder when it had no customers and no revenue, with the intention of slotting it straight into their product lineups.)
3) Failing the strategic acquisition factor, some web apps (typically ones you won't read about in the newspaper) are sold as turnkey businesses. Valuations are generally based on a multiple of the last year's profits, with the multiple sensitive to the amount of risk, etc. If I sold BCC on Flippa, for example, I could reasonably expect to get ~$25k for it: a wee bit less than 1X last year's profits. $50k would be pushing it. Nobody in their right mind would pay $100k for it if they were just intended on keeping it running as it is.
4) Are there multiple prospects to play against each other? Bidding wars raise prices, sometimes very significantly.
5) Is the app in a "rich" vertical? There are occasionally examples of heavily undermonetized web sites bought for anomalously high sums of money. Some SEO friends of mine love taking people's hobby projects and bolting on effective monetization. If there is an obvious route to this, then the fact that current revenues are terribly might not necessarily predict a 1 * $TERRIBLE sales price.
6) How risky is the web app's current position? Is it highly dependent on a single source of traffic (cough Google)? Is it highly dependent on a single source of traffic and has it gotten that traffic through grey hat tactics which could be discovered at any time via manual or automated review? Is it in a declining field? Is it in a rapidly evolving field where competition could reasonably be expected to eat its lunch?
7) What are the upkeep expenses, including fair market salaries for employees for any skills needed? Just because my time is free to me doesn't mean the Rails programmers and SEOs that the company grabbing any of my sites will need are also free.