Re: How to value a web site

From: Ray Taylor <taylor_at_nmcadplan.com>
Date: Mon, 1 Feb 1999 06:42:56 -0600 (CST)

"ULRICH VOSS" <VOSS_at_VOCALWEB.DE> WROTE:
>I think the most authorative (sp?) source of valuation is
>the stock market.
>
>To get the market cap of yahoo is quite easy.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


Determining the value of a private corporation is very
different from a public corporation.

Working out the value of Yahoo is very easy indeed. You only
have to check the price the shares are being sold at.

This is fine if all you want to do is buy a few hundred
dollars worth of shares and then sell them as soon as the
price has doubled (the way things are going a few weeks). If
you are lucky you will sell the shares before the market
price crashes - the bubble must burst some time.

If you are buying into a private corporation then it's a bit
more complicated. For one thing you probably want to invest
for a long period and have a high degree of commitment to,
and involvement with, the corporation you are buying into.

Because the shares of a private corporation are by
definition not publicly traded, there is no immediate stock
market pressure up or down. Investors will never realise a
profit merely by buying and selling the shares, only by
holding on to the shares for long enough for the value of
the corporation as a whole to grow through growth in sales
and profits.

Really, the only way to value a private corporation is to
look at everything. Mostly, the value of an internet-related
company will be goodwill and perhaps intellectual property
rights, since most internet-related companies do not have
fixed assets like plant and machinery (other than
computers).

The goodwill (sorry if that term is only used in UK English)
relates to things like your client list and the potential
value of repeat orders, the order book itself and projected
sales and profits. It can also include things like your
network of contacts. If the directors are on good terms with
business journalists, get lots of editorial mentions, if you
have a good network of reliable suppliers, if the people
running the operation are well regarded by partners and
competitors it all adds to the goodwill surrounding an
enterprise.

If you are trying to sell a business, draw up a list of your
assets - real, fixed, cash in the bank, work in progress,
advance orders, and don't forget the goodwill. Valuation of
the whole thing is then just a question of putting a price
to each item.

If you are buying, do the same but also carry out due
diligence checks. Ask the bankers for references, contact a
sample number of clients, discreetly, to ask their views.
Investigate any court judgements, bad debts, complaints and
anything else that might cause problems down the line.

The number of impressions a site generates may indeed have a
bearing on the value of the business, but only if they have
a ready market. A million impressions are worthless if
nobody wants to buy them. And valuation of a million
impressions is relation to the value of a million Yahoo
impressions is a non-starter because you have to be Yahoo to
sell impressions for Yahoo prices.

If, however, you have a million impressions that are not
sold because you have no sales force there is a potential
value based on the price the buyer (of the site that
produces them) could sell them for and the likelihood of
them being sold.

Ray Taylor
NMC/Adplan
London +44 181 639 0015


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Received on Mon Feb 01 1999 - 08:00:28 CST