Revenue with no profit?

What multiple would, on average, of revenue would an internet company sell for?

I know it is around 10x profits depending on growth and the specifics but I'm wondering about no profits.

Thanks!

 

i think 60 , if your company makes $1000 a year its worth $60k ,provided that business model is good and have good chances to grow

 

That's tough. You're lookin at speculators, then. What they'd buy a non-profitable business for? Guess it'd depend on what they perceive the future as. Youtube wasn't profitable, neither are most of the companies google buys.

I think uniqueness, userbase, etc all play a role.

If you had a business that profited $1k per year and you were asking $60k people would laugh at you. $1k/year is worth about $2-3k at most.

 

it really depends on buyer , if your company is going to boost business of buyer then sure you can get 60 k too .,i know various loss making companies sold at huge P/E(price to earning's ratio) .Also it depends on current assets of your company ...( for example it is loss making company for you , but if a marketing company like SEO buy it with huge client database it may be huge profit making firm for them) .

and here in india if a company makes profit of 1 million its market capitalisation quotes near to 60 million (60 p/e in case of profit making software companies)

 

he said revenue, no profit. so you assume it has to be making a loss or netting nothing.

 

60 P/E??? The market's long term average Price to Earning ratio is about 15. That is Earnings - not Revenue. The value of a company when talking about Revenue is a very different animal - start thinking 1x or 2x Revenue.

 

It would totally depend on the potential of a business. I can start a business buying iPods for $300 and reselling them for $100. This business could easily have a huge amount of revenue with no profit--but I doubt you'll find anyone willing to buy the business.

 

We lose money on every sale, but we make up for it in volume!

 

I have always worked on the price of an online business to be 10x - 12x the profit of the business so if you make 1k a month then the price of the business would be 10k - 12k

Pete

 

the most that is paid is about 2x (yearly). This is up ro 24x monthly depending on the possible growth

 

Company valuation is a tough calculation, I have some experience
at this, so here are my thoughts.

1. Most important, a company is only worth what you can get for
it. There are many off-the-books factors that might raise or
lower the value in the eyes of a potential buyer. The general
rules-of-thumb are good to know so you have a basis for your
opening offer, but if it is only worth money if someone is willing
to buy it.

2. The rule-of-thumb for a company generating income but no
profit is 1x sales, so if you are bringing in $12k a year your
company is worth $12k.

3. The rule-of-thumb for companies that are profitable is to look
at the multiples of similar companies on the stock market.
HOWEVER, a public company is worth more than a private company
so you have to discount the P/E, usually by 50%.

4. It is possible to price the company based on future growth. It takes some math, but basically you take the
profits that you expect to make in the third year and then
discount it by the rate of return that your buyer needs to
make this a good risk, for example 40% per year.

5. Synergy with other business done by the buyer may increase
the value to him. Or special knowledge needed to make the
business grow may make it less valuable to him.

Good luck
wiz

 

I thought it was slightly below 30?

 

About 15 PE long term -> http://en.wikipedia.org/wiki/PE_ratio#Interpretation

 

A century is too long don't you think?

 

don't be silly. I am giving you benefit of the doubt that you were pulling his legs earlier. 60 P/E is the exception rather than the rule.

 

Another way to look at company value is to compare the investement
with other things you can do with the money. If interest at a
bank is 5% then an income of $50,000 is worth a million dollar
investment.

This would represent an P/E ratio of 20.

BUT--this has to be over and above the owner's salary because he
presumably could get a job and make that much without investing
anything.

If it takes a $100k a year man to run this business the $100k
has to be taken out of the profits before applying the ratio.
If it takes 4 hours a week of a $100k a year owner then
you can prorate it.

Of course buying a business is riskier than depositing the money
in a bank, so there has to be some discount to entice the
buyer to take the risk, which is why I said the P/E ratio must
be discounted.

So if you have profits of $10,000 a year from your web site and
it takes you 8 hours a week to run it and the skill level to
run it is $20 per hour, then subtract a years worth of wage
expenses $10,000 - $8320 = $1680 and multiply by a P/E
of 10 (he could get 20 at a bank) and the company is worth
$16k--

--if you can find someone with $16k that can't find something
better to do with his time and money.

Best regards
wiz

 

Right--Google has a p/e of 60, microsoft has a p/e of 20. You can't
compare India and the USA until you compare the local interest
rates, the local inflation, etc.

 

Also keep in mind that some companies have a higher P/E due to their growth rate.

 

This is mentioned in #4 of my post from October 24th.
But remember, after you sell it the new owner is responsible
for the growth.

One innovative thing one of my rich friends did was to take
a contingency payment depending on growth, and then after
he sold the company he continued to help it grow.

 

Right, but I was talking about purchasing a few shares, not the entire business.
When considering the entire business, EV/FCF is a much better ratio to use.
Earnings can be manipulated by aggressive accounting practices. FCF is very difficult to manipulate. In addition, unlike market capitalization, EV reflects the real value of the company.