Estimate the value of a website
August 25th, 2008Last week I wrote about finding websites for sale and if you’re in the market, it’s important to understand the value of what you’re buying (or selling). Fortunately there are some online tools out there to give you an idea of a website’s value.
Most website valuation calculators use a combination of factors to evaluate a website’s worth: Google pagerank, daily visits, pageviews, domain length (shorter is better), # of backlinks, Alexa ranking, Quantcast ranking, etc. It often seems the more factors these sites take into account, the better the estimate. Still, these sites generally miss the mark since they fail to take into consideration factors they can’t measure (like e-commerce sales, subscriptions, email list size, etc.). One site we looked at gave Google an estimated value of $1.5B whereas Wall Street tends to value the site at $150B (100X greater!). Oddly, the same calculator said Yahoo! was worth $2.6B and one of our sites only $136 (we usually earn more than that on ads in a single day). Of the sites we tested one of the better ones was cubestat.com but your results may vary.
Still, perhaps the most reliable way to value any company (internet or not) is to use the cash flows the business generates to calculate the net present value (NPV). If the website earned (profit, not revenue) $10,000 last year and is growing 5% per year you can get a good estimate of the value of those cash flows over the next 5 years (roughly $40,000 at a 12% discount rate). No need for new math here just because we’re talking Internet businesses - good old NPV works just fine.
All of this is to say it’s important to do as much due dilligence as possible before buying ANY business, online or offline. Dig into the financials and you can come up with a good estimate for the value of any website!
