While newspapers have managed to build sizable audiences online and generate revenues, they have not managed to become profitable. Part of the reason is that users expect free content and services like Craigslist.org have offered free classifieds, making it harder for newspapers to sell listings to merchants and individuals.
Craigslist was founded in 1995 by Craig Newmark. The company started off as a mailing list with SF-based events, the moved online. In 2000 Jim Buckmaster took over day-to-day operations as CEO. Today the company is in 450 communities, and makes somewhere in the ballpark of $20M per year in revenue. The company is profitable with 24 employees.
How much does Craigslist make is not the question bothering analysts, the real question is how much could it make.
We ran some numbers.
Relying on widely available figures, our own estimates and some common sense, we project Craigslist capable of making more than $75M per month from contextual ads alone. Contextual ads are ads that Google runs alongside content.
Google makes money by serving up ads on pages, or pageviews, and obtaining a revenue-per-click (or cost per click, or CPC) everytime someone clicks on an ad (a click through rate, or CTR).
For the record, we advise Craigslist to develop its own contextual ad marketplace, first within Craigslist.org, then with the option to add it to other sites for people who want to drive more traffic to listings, whereby Craigslist would share ad revenue with publishers. This would give Google some competition, which is always welcome, and frankly, sorely lacking.
When looking at contextual advertising revnue, the revenue is equal to:
Revenue = Pageviews x CPC x CTR
In Craigslist’s case, they obtain - according to its own site - 5 billion pageviews.
Here is a range of CTRs and CPCs. We think that Craigslist can earn anywhere from $1 to $1.50 per click pretty easily, and it can obtain CTRs of anywhere from 1% to 1.5%.
If we take the median revenue, or $78M per month, that implies $937M per year. Furthermore, this is only from such contextual ads.
Craigslist, unlike Google, employes 24 employees. Say Craigslist total cost are $10M, then it currently enjoys profit margins of over 50%. eBay, it should be noted, is widely credited with the leanest business model online, with margins of 80-90%. Google has a lot of costs: a lot of computing power and brainpower mean margins of 30%. But if Craigslist adds ads on its site, its profit margin will only go up. We’ll project that Craigslist can maintain margins of 85% as a very conservative metric if it optimizes ads. While the ratio seems overly optimistic, it’s common sense. Craigslist’s costs will not be $150M if it makes $1B in ads, will it? So we are confident that it can earn as much as 85% in profit margins, which is why Google launched Base and eBay bought 25% of eBay from a former shareholder/employee.
At $1B in revenue, and a price/sales ratio of 10, that implies a valuation of $10 billion.
At $1B in revenue, a profit margin of 85%, thus profits of $850M and a price/earnings ratio of 30 implies a valuation of $25-30B.
Measured by traffic, Craigslist is also capable of boasting an impressive valuation, this is the Web after all, eyeballs matter!
When you incorporate all risks and variables, we project a value of $20B to Craigslist. Of course, this implies it begins to optimize ads. But even at $20M in revenues, with some 5B in pageviews, how much do you think Craigslist is worth to other media firms struggling to contain, let alone overtake, Google?
Obviously with $20M in revenues, it’s hard to project anything over than a valuation of $1-2B on Craigslist, even with its lofty pageview/impression volume. But YouTube fetches $1.6B despite its copyright woes and user generated content (thus inability to monetize via traditional advertisers) when it was generating $15M in revenues in 2006 (even though it had the ad inventory bandwidth to do $7.5M per month according to our numbers).
After all, that loud sucking noise newspaper families are hearing is going somewhere, and it’s wherever the house in this video is.
According to its site, only six sites: namely Yahoo!, MSFT, eBay, AOL, News Corp. and Google boast larger audiences. All of those companies have massive valuations. Of course, some of those have other assets, to put it mildly.
Anyway you dice it, we project Craigslist to be a company worth more than InterActive Corp., Amazon.com but less than eBay and Yahoo! Which is interesting, because while Jim Buckmaster and Craig Newmark seemingly never once looked at the bottom line, they have built one of the most breathtakingly profitable enterprises in the history of commerce and communications.
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March 20th, 2007 at 1:11 pm
How did you come to the conclusion that CL could get between a $1 - $1.50 CPC? Does this assume they use Google or build out their own? Curious…
March 20th, 2007 at 1:41 pm
If they use a partner, I am sure they can get 75% to 100% revenue share… but I would recommend that they develop their own bid system and paid clicks database.
I assume they can get $1-$1.50 because the average is $1.39 on Fathom Online… those are for averages of content and commercial oriented keywords, on CL, where a lot of the action is around jobs, housing, cars etc., don’t you think the CPCs would be much higher than the industry norm?
My gut is that people have a higher propensity to / intent shop, buy or sell on CL and therefore CL could make a very high eRPC/eCPC.
thoughts?
Ash
March 21st, 2007 at 5:55 pm
[…] Craigslist wird mit 20 Mrd. Dollar bewertet. […]
March 22nd, 2007 at 10:49 am
[…] da macht jemand ne grobe Überschlagsrechnung auf: wenn Craigslist ca. 5 Mrd Pageimpressions pro Monat wuchtet (und ist damit größer als die ersten 10 Topsites in D zusammengenommen), wieviel könnte die Seite eigentlich verdienen, wenn sie den Werbekanal aufdrehen würde? Antwort: rund 1 Mrd USD. Bei einer angeblich Umsatzrendite von 80% wäre unter Annahme eines Kaufpreises von 10:1-30:1 (Faktor*Umsatz bzw. Gewinn) zwischen 10-30 Mrd USD wert. Na ja, schöne Milchmädchenrechnung, da keine Firma dieser Welt imho so einen Preis für Craigslist zu zahlen bereit wäre. Aber, was auf alle Fälle richtig ist, dass Craigslist -wie alle Experten bestätigen- seinen Umsatz “locker” von geschätzten 20 Mio USD/Yr auf 500-1.000 Mio USD steigern könnte. Selbst wenn man superkonservativ drangeht, könnte man mit Google AdSense bei einer Klickrate von 1% und einer CPM von 1 USD 60 Mio USD zusätzlich einnehmen, plus die 20 Mio aus Job- und Immobilienanzeigen. Dann wäre man irgendwo bei knapp 100 Mio USD. Und selbst wenn die Umsatzrendite bei 50% liegen würde (Craigslist gilt als die profitabelste Plattform weltweit unter Effizienzgesichtspunkten), würden noch rund 50 Mio USD vor Steuern übrigbleiben. Und warum dreht Craig Newmark nicht auf, obwohl der Einbau von Adsense supereasy wäre? Antwort: er scheißt aufs Geld:))) Das wiederum treibt weltweit den Web-Unternehmern die Tränen in die Augen, muahahahahaha:)) Sie verstehen das nicht: you start with nothing and you die with nothing […]
March 28th, 2007 at 1:48 pm
[…] Conservative valuation of Facebook Posted March 28, 2007 Not too long ago, Facebook posted some interesting graphs on its blog. Ashkan at HipMojo posted an interesting valuation of Craigslist that got me thinking about Facebook’s value. Ashkan derived advertising revenue by multiplying pageviews by click through rate (CTR) by cost per click (CPC). Although Facebook is nothing like Craigslist, a quick, back-of-the-napkin look at Facebook through a similar lens is interesting. View the Google Spreadsheet I put together. […]
March 28th, 2007 at 1:53 pm
Interested post Ashkan. Craigslist definitely has a lot of inherent value. I tried a similar process with Facebook, check it out http://foroobar.wordpress.com/2007/03/28/conservative-valuation-of-facebook/
April 9th, 2007 at 6:26 pm
[…] Valuecruncher has placed a value of $28 per eBay share with a range between $22.52 and $34.05. The current share price of $33.71 is at the upper end of the Valuecruncher range. Valuecruncher may be undervaluing eBay, as the methodology does not explicitly model the growth options available. The current market price implies an enterprise value (EV) to EBIT multiple of 26.9 compared to Valuecruncher’s mid point EV-EBIT multiple of 22. It is difficult to compare eBay’s EV-EBIT multiple with other comparable companies as each has there own unique set of options. To provide a point of reference eBay’s current market multiple is considerably lower than online companies Amazon.com (42.4), InterActiveCorp (IAC) (38.4) and Google (38.2), none of these companies are directly comparable to eBay but they all have online growth opportunities. The size of these multiples suggests the market is prepared to include a significant portion of the potential growth opportunities value into today’s price. To add a New Zealand perspective online auction site Trade Me sold for approximately 15 times forecast EBIT in early 2006. The short-term revenue growth rate of 25% and terminal growth rate of 5.8% used by Valuecruncher acknowledge the growth available to eBay. These growth rates are very aggressive but may not fully capture the potential of opportunities such as eBay’s VoIP provider Skype. eBay’s ViOP provider Skype represents a significant growth opportunity but it is very difficult to model this opportunity explicitly. Skype had 171 millions users at 31 December 2006 with using over 28 billion free Skype to Skype minutes. Skype out minutes totalled 4.2 billion in 2006 contributing to revenues of $195 million. eBay hold a passive 25% stake in online classifieds site Craigslist which has an estimated revenue of $20 million per annum but has the traffic and untapped potential to significantly increase this. It is difficult to estimate a value of eBay’s 25% stake in Craigslist and it is definitely contributing to the difference between the Valuecruncher mid point valuation and the current market price. Is eBay overpriced? The difference between the Valuecruncher mid point valuation and the current market valuation is approximately $7.5 billion. Whether eBay is overpriced (or under priced) depends on your opinion on the potential of VoIP, Skype and Craigslist. Valuecruncher Assumptions Valuecruncher has forecast revenues to grow at 25% over the next three years and an EBIT margin of 30%. […]
April 3rd, 2008 at 3:32 pm
hey ash - saw your post over at alleyinsider.com and tracked it to here. i just wanted to say i enjoyed your articles on askmen.com years ago. great stuff! i hope all is well.