On 29 January 2010, after a month of spirited bidding, 2009 Anthill Smart 100 honoree Apartmentreviews.com.au was sold for $8,700 on the website-auction site Flippa.
Bids on the residential review site helped it rank as high as second on Flippa for most active auction. In the end, Apartmentreviews.com.au, a site that lists and rates hundreds of residences around Australia, attracted 50 bids.
Flippa, by the by, is another Australian digital business — an online auctioneering site, based in the inner-Melbourne suburb of Collingwood, and a spin-off of design competition behemoth 99Designs. It is one of the world’s larger website auction sites.
In a message to Anthill, Apartmentreviews.com.au founder Shane Moore said, “There aren’t so many Australian websites that sell for more than a few grand on Flippa.”
Moore is clearly happy with the sale price.
But why $8,700? Was this a fair value?
How do you value a website?
According to Moore’s Flippa listing, before the sale, the site was attracting 4,265 Unique Browsers and 16,612 Page Views a month, which is not too shabby for an unkempt and largely neglected web property, but hardly traffic volumes worth getting excited about.
Furthermore, the site’s only revenue comes from Adsense text advertising, generating a less than boast-worthy $50 a month.
That’s right. Only $600 per year.
On that basis, Moore has achieved an astonishing feat, attracting a valuation that represents a revenue multiple of 14.5.
Assuming that its business overheads involve nothing more than hosting fees (let’s say at $25 per month), this sale price represents an EBIT multiple of 39. The listing puts net profit at $43 per month — and, therefore an EBIT multiple of 16.
According to the listing: “A few years back I also had real estate agents paying me directly for advisertising [sic] on the site, at the rate of $100 per month per agent. I ceased issuing invoices in early 2009 as my time was being taken up elsewhere. The ads have now been removed from the site.”
This begs the question, ‘Are there other forms of ‘equity’ in the business that could have triggered this high multiple?’
Do traditional forms of ‘equity’ apply online?
The idea for Apartmentreviews.com.au was conceived in late 2006 and the site went live in January 2007. The site quickly built up a large database of buildings and reviews.
At the start of 2008, the site started to accept listings from agents that allowed them to list contact details on any buildings they specialised in. Today, there are 37 agents listed on the site.
The site has also attracted media buzz and it won over Anthill’s SMART 100 ‘maven’ judges in 2009, ranked as the list’s 29th most innovative business.
In other words, it has a history, brand awareness and customers.
Interestingly, however, none of these factors (except perhaps history) are likely to have influenced the buyer.
What is a strategic sale?
In the context of a traditional trade sale, profit is king. Most buyers will value the business against a multiple of EBIT, alongside tangible assets, such as equipment.
In the event of a ‘strategic’ sale (where the buying organisation has reason to believe that it is in a unique position to achieve an immediate profit, not otherwise available to the seller), a revenue multiple might be employed as a benchmark to kick things off (again, alongside assets).
But usually, in the case of a strategic sale, the dominant factor influencing the buyer is the profit it thinks it can achieve as new owner of the property relative to the selling price.
For example, a large company with a big sales channel might be able to market the newly acquired business (and its products) to an existing customer base and profit that way. Perhaps the company under the hammer fills a gap in the buyer’s arsenal of products. Perhaps it offers a strategic solution to a technical problem on the buyer’s side. Or perhaps the buyer wishes to consolidate its segment, and enjoy the the spoils that come with total market domination! (Insert maniacal laughter here.)
In other words, a strategic buyer is often prepared to pay a price far above EBIT or revenue multiples simply because it can see an obvious and imminent pay-day.
However, in this instance, such an explanation doesn’t tell the full story.
Websites are valued against new metrics
There is no doubt that the purchase of ApartmentReviews.com.au was influenced by factors beyond profit and revenue.
This is simply because the site was barely generating revenues before the sale and, despite our optimistic EBIT multiple of 39 (or the inferred 16), it is not clear whether the site was profitable, breaking-even or losing money.
It is possible that the purchaser represents a real-estate interest and has a desire to pick through the site’s existing customers (in the absence of hard assets to salvage), sees value in the technical IP of the product (wants to adopt the infrastructure of the site) or has a channel to push the product onto (and profit by selling the service to its customers).
However, there are three factors that stand out on the listing description:
- Domain: http://www.apartmentreviews.com.au/
- Site Established: 1st Jan, 2007
- Google PageRank: 3
Why are these factors important?
To put it simply, the domain name is rich in popular (read: expensive) keywords, Google’s search algorithms favour sites with history (i.e. the longer a site has been consistently live the better) and it already has a Google Search Ranking of ‘3’ (i.e. something that many companies pay SEO ‘gurus’ and consultants big money for, sometimes thousands of dollars a month).
In the context of an online property, these traits are highly valued.
So, was this sale good value for money? Was $8,700 a fair price? Well, there are only two parties who can answer that question. (And we know that one of the pair is beaming.)
Have your say below. What factors do you think website buyers are looking for?
Image by walknboston
