Regards,
Devon
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...)
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!
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.
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
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!
Hitchhiker: Step into my office. Ted: Why? Hitchhiker: 'Cause you're f*in' fired!
I heard Tim Ferriss claim that this is how he picked the title for his book, "The Four-Hour Workweek".
On the other hand, you could also just pull 10 minutes out of the air and say "that sounds about right". Which it does.
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.
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.
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.
Check out this article and you should easily be able to do it: http://en.wikipedia.org/wiki/Valuation_using_discounted_cash...
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.
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.
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.
http://www.sitepoint.com/marketplace/
Since the other party sought you out, don't feel the need to discount too much.
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.
What are your current ad revenues like? How many uniques per month? How many email addresses created so far?