Burst and Website Valuation

From: Bob Bose <bobbose_at_sover.net>
Date: Fri, 15 Jan 1999 10:42:53 -0600 (CST)

I rarely post but the "Web Site Valuation" and the "Burst"
comments moved me off dead center. And, I would like to
contribute something to what I think is a very good list.

First, the reply about the Burst CPM of $3 did not mention
net or gross. My guess is gross, and that Mark is right.
Our site is also a member of the Burst network, so I do see
all their default campaigns, and it would be very, very
difficult to get to $3 CPM net on their default campaigns.
I won't run their defaults, as it would dilute other things
that I want the site to accomplish, and they, Burst, don't
seem to be very good at selling financial ads.

But, the fun issue is the web site valuation. Why should it
be any different than any other investment. Answer, it
shouldn't. So, because investment management is what I do
to eat, here is my suggestion.

Use a discounted free cash flow model. Essentially one
projects free cash flow - that is what is left over after
the necessary expenditures to maintain the company's growth
rate. So, if it is one of Mark's "labors of love", as my
site is, that means establishing costs for the editorial
content and other "little" items.

Even though we have an opt-in subscriber list to our
newsletter of 21,000, in my opinion there is no "goodwill"
attached to that list. It is only worth what it can
generate in cash flow. In other words, if an ad is run, for
which the advertiser paid real bucks, but the response is
nil, where's the value? On the other hand, if the response
is great, because our subscriber base has great
demographics, then the cash flow will be there, and the list
is worth big bucks. It has virtually nothing to do with
whether or not I have built up "goodwill". In my opinion,
goodwill would only come into play if the benefits could be
extended to something else. But, if that were true, then it
should be able to be captured in a cash flow estimate.

Now the cash flow projections do, particularly in the case
of the internet, have growth rates. My models use a three
stage process. One growth rate for the next five years, a
lower growth rate for the following five years, and then a
"steady state" growth rate which should not differ much from
GDP growth for infinity. Because the model is VERY
sensitive to the growth rate assumptions, and the discount
rate as well, one has to be real careful here. But, it is
fun to "run the numbers."

If you want a spreadsheet that you can download, just go to
our site at http://www.stockresearch.com and go to the
Archive Section. Once there, I think the first
recommendation we made has a spreadsheet that can be
downloaded by using shift and clicking on the link. If not,
one of the other original recommendations does.

The key here is not the model, that is simplicity itself,
and valid from both a theoretical and practical point of
view. What makes it work is the accuracy of the projections
for free cash flow, the growth rates, and the discount
rates.

Hope this helps.

Bob

--
Bob Bose
Green Mtn. Asset Mgt. Corp., 139 Bank Street, Burlington, VT 05401
FREE Investment Newsletter - http://www.stockresearch.com
FREE Trial Investor's Business Daily
http://www.stockresearch.com/ibdform.html
800 - 385- 2673 / 802 - 658 - 7806


========================================================================
------------------------------------------------------------------------
       This week's Online Advertising Discussion List sponsors:
         eGroups.com , ValueClick and Enterprise Interactive

 eGroups.com hosts e-mail discussion groups with over 2 million users.
 And you can precisely target them with e-mail advertising that really
 works. To reach opt-in, interested users, contact sales_at_egroups.com

                                ---

 ValueClick has cost-effective ad space available for *Smarter Buyers*
 -> Our Cost-per-Click model means risk-free Reach to over 10k websites!
 ValueClick Ad Network | 805.965.0543 | http://www.valueclick.com

                                ---

   CUSTOM CONTENT FOR YOUR SITE - articles, features, daily tips by
   Enterprise Interactive's team of writers, editors and marketers.
   peter@enterprise1.com, http://www.enterprise1.com, 203.838.9383

------------------------------------------------------------------------
========================================================================
Online Advertising Discussion List To Unsubscribe send UNSUBSCRIBE
http://www.o-a.com/ to online-ads-request@o-a.com



Received on Fri Jan 15 1999 - 14:15:00 CST