I'm genuinely confused about valuations. Craigslist is making $80 million in revenues, and of course less in profits. Say someone buys the company/organization for $5 billion. Won't it take a good many years to recover the price paid via the site's profits? In general, when companies acquire other companies, they should want to make back their purchase cost quickly and hopefully make a lot more in the near future right? Even if the acquirer thinks they can hack the business model, add more advertisements, or charge for more things, isn't it a huge gamble to pay so much over the current profits? I'm missing something but don't know what.
The current $80m in revenue is an extremely misleading figure to base a valuation upon. Craigslist exploit the absolute minimum of their assets and any company taking control could make considerably more with little additional expense without even considering the potential of international expansion or using its ability to expand other brands or services.
While I think the article is more than a hyperbolic with its projected revenues and valuation, I certainly think a valuation of a few billion would be fair, especially when you consider Skype was bought for €1.9b, YouTube was bought for $1.65b and Bebo was bought for $850m.
"Craigslist's content is not at all bandwidth intensive--all light text, no computation or transactive processing like eBay or Google--so this should keep its costs well below those of other huge global sites. Let's call it $50 million a year. (This is probably high--grateful for any help in refining)."
What is he smoking? Sure they have a lot of page views, but man, you can do a lot for $50 million a year. Craigslist's site is as bare as it could be. All static html, that is probably just generated using whatever scripting language it wants. I'm there is some engineering challenges and that they go through a good bit of bandwidth, but i mean, I feel like this guy is off by like an order of magnitude. Now, I don't know squat about serious big iron servers and doing stuff that large, but its definitely not $50million to run it. A guy in the site's comments puts the yearly cost at $1 million and he even over-estimates a bit in my book.
Also, all these analysts always speculate about how much money craigslist could make if they charged for all job postings and ads. As soon as they started charging for anything more than what they do they would probably get an order of magnitude less postings. Then they would just another monster.com/careerbuilder.com/etc crappy clone. Whats great now is that people can post whatever they want for free, with the few exceptions that help pay for it all (and still probably make Craig rich). The author obviously didn't study engineering or physics because his back-of-the-envelope calculations suck.
My favourite part about this article is in the comments, where someone estimates CL's hosting costs about about $1 million a year for over 100 billion page views. But you can do that on a page load average of 6 kb. I used to work at a company whose nav images were each 50 kb.
Why? Is he using an alternative currency system? Does he do math in base 8? Is there some other flaw in reasoning that makes this argument not worth listening to?
Thank you! These are all problems I noticed, too. Interestingly enough, when I went into 'view source' and changed the byline to 'ilamont', the problems were still there. Almost as if they had nothing to do with the author.
In fact, the whole article is pretty specious. 'Value', as ex-analyst Blodget surely knows, can refer to either the price someone else will pay for an asset, or the present value of the future cash flows generated by that asset. The first one doesn't make sense because Newmark says he won't sell; the second invalidates all of the assumptions in the article because Newmark appears determine to run it the way he likes it. By that standard, CL is probably worth something like $250 million.
