While most Website brokers rely heavily on earnings multiples when valuing a website, there are other variables that may either increase or decrease the value of a site. An owner that is looking to sell internet business will rightfully point out that his traffic and google page rankings are high and should have a positive impact on his website’s valuation. While both numbers are vitally important to a website’s success, aren’t they already accounted for by the revenue and earnings of the business?
As internet business brokers with heavy finance backgrounds, our firm tends to look at many of the other intangible assets that drive up the value of a website. For instance, if a website has a longer operating history and more importantly, a history of earnings growth, it will deserve a higher multiple. Additionally, we perform our industry analysis and view the amount of competitors within, the barriers to entry, the legal concerns and stability of the industry in question.
The gross and net margins (and their trends) and the working capital requirements of the business are important valuation variables also. Any buyer that needs to come up with an additional 30% of an offering price to account for the inventory requirements of the business will likely factor that into his ROI calculations. Obviously, customer data such as repeat business and unique visitor stats are important as they help determine the longer-term stability of the website.
At the end of the day, valuing a website business is not as simple of a process as sticking numbers into a finance calculator. We may begin with a multiple of earnings number but then must discount or increase it to account for the distinct variables of the business.