How do you figure the value of a blog?
December 3, 2006 5:22 PM Subscribe
How do you value the content of a blog, or any media company, whose content isn't made up of physical assets?
Myself and I are debating this: How would one figure out the worth of a company who's assets are primarily non-physical?
The example I'm trying to work out is if two people incorporate to create a blog to generate income. It will be a standard blog where an article a day is written. And after doing this for 5 years, Person B wants to buy a house and wants to sell his stake in the company to Person A. How do you value the assets of this company, so that you know what 50% of the company means? It can't be just the physical assets, like computers and office space, because the income from the articles is the actual asset. Is it the value of the projected income from these articles over a certain amount of time? Is it just what ever the person is willing to pay?
I'm essentially looking for a semi-logical method to estimate this value. Thank you.
Myself and I are debating this: How would one figure out the worth of a company who's assets are primarily non-physical?
The example I'm trying to work out is if two people incorporate to create a blog to generate income. It will be a standard blog where an article a day is written. And after doing this for 5 years, Person B wants to buy a house and wants to sell his stake in the company to Person A. How do you value the assets of this company, so that you know what 50% of the company means? It can't be just the physical assets, like computers and office space, because the income from the articles is the actual asset. Is it the value of the projected income from these articles over a certain amount of time? Is it just what ever the person is willing to pay?
I'm essentially looking for a semi-logical method to estimate this value. Thank you.
It is, of course, worth exactly what someone may be willing to pay, including what a 50% partner is willing to pay to buy out the other.
You would have to look at what other, similar entities are selling for at the time. Usually these valuations are expressed as multiples of earnings, or multiples of cash flow (earnings before interest, taxes, depreciation and amortization). So if other blogs are selling for 6 times cash flow, yours is worth that, too, assuming there are looming problems.
It makes some difference whether the partnership share being sold is more than, less than, or equal to 50%. A less-than-50% share is not a controlling interest, so it is likely to be valued at less than the current multiple, while a controlling share may be worth a bit more.
posted by beagle at 5:47 PM on December 3, 2006
You would have to look at what other, similar entities are selling for at the time. Usually these valuations are expressed as multiples of earnings, or multiples of cash flow (earnings before interest, taxes, depreciation and amortization). So if other blogs are selling for 6 times cash flow, yours is worth that, too, assuming there are looming problems.
It makes some difference whether the partnership share being sold is more than, less than, or equal to 50%. A less-than-50% share is not a controlling interest, so it is likely to be valued at less than the current multiple, while a controlling share may be worth a bit more.
posted by beagle at 5:47 PM on December 3, 2006
Is it just what ever the person is willing to pay?
Well, in this case, it'd be more like what the other person was willing to accept. But more or less you've answered your own question.
posted by cillit bang at 5:55 PM on December 3, 2006
Well, in this case, it'd be more like what the other person was willing to accept. But more or less you've answered your own question.
posted by cillit bang at 5:55 PM on December 3, 2006
Well, you also have to look at the fact that the blog (is a blog is in question) is probably losing one of it's authors at this time and that this may significantly decrease future earnings. The leaving partner usually takes some value with them when they leave and, unless a non-compete agreement is in place, could even restart their own half elsewhere after making off with the cash, taking many readers with them. There are a lot of variables to consider when making such a transaction. Simple multiplication wouldn't cut it with this business.
posted by IronLizard at 6:10 PM on December 3, 2006
posted by IronLizard at 6:10 PM on December 3, 2006
One typical way to create a fair buyout value for a two-partner company is this:
--partner A decides on a value, and offers it to partner B - A is offering $X for B's share of the business.
--B now has a choice: he can either accept A's offer, OR he can buy A out at the offered price, and A must accept it (you can draw up documents to this effect, and sign them). This prevents A from offering too low a value for B's share of the business, because he might be forced to ACCEPT that amount from B for his own share.
It's "I cut, you choose" applied not to cake, but to business. A decides on the cut - what "half of the business" will be valued at. B then gets to choose.
posted by jellicle at 6:56 PM on December 3, 2006 [1 favorite]
--partner A decides on a value, and offers it to partner B - A is offering $X for B's share of the business.
--B now has a choice: he can either accept A's offer, OR he can buy A out at the offered price, and A must accept it (you can draw up documents to this effect, and sign them). This prevents A from offering too low a value for B's share of the business, because he might be forced to ACCEPT that amount from B for his own share.
It's "I cut, you choose" applied not to cake, but to business. A decides on the cut - what "half of the business" will be valued at. B then gets to choose.
posted by jellicle at 6:56 PM on December 3, 2006 [1 favorite]
Of course, since B doesn't want a blog, he wants a house, and A knows this, that could muck things up in jellicle's scenario. (Which I must say, for pretty much any other situation, sounds like a great way to do things.)
posted by SuperNova at 7:29 PM on December 3, 2006
posted by SuperNova at 7:29 PM on December 3, 2006
Is it just what ever the person is willing to pay?
Well, yes, always. It doesn't matter what asset X is theoretically valued at - it's simply not relevant - if you can't clear the sale of asset X at that price.
Is it the value of the projected income from these articles over a certain amount of time?
You're trying to estimate your book value. On the balance sheet, it'd be all about intangibles, such as what's called "goodwill."
It might be just this, in which case you'd be thinking about net operating income in order to estimate its worth.
On the other hand, your blog might have the potential of readership growth and ad revenue growth if properly managed, and possibly also spinoffs leveraging your brand, such as merchandise: BlogX t-shirts and BlogX hoodies and BlogX liquor flasks; or the 1 week BlogX School of Bloggerly Thinking course held every year in Asheville, NC at a cost of $2500 per attendee. In this case, valuation would take into account these future prospects and ownership shares in the company would trade at a higher multiple of future earnings to account for them.
These are real headscratchers, the sort of things that keep very clever people in business as financial analysts. I'm sure someone with more knowledge will drop by to expand further on the specifics of how to calculate operating income and what multiple to use to value it.
posted by ikkyu2 at 11:10 PM on December 3, 2006
Well, yes, always. It doesn't matter what asset X is theoretically valued at - it's simply not relevant - if you can't clear the sale of asset X at that price.
Is it the value of the projected income from these articles over a certain amount of time?
You're trying to estimate your book value. On the balance sheet, it'd be all about intangibles, such as what's called "goodwill."
It might be just this, in which case you'd be thinking about net operating income in order to estimate its worth.
On the other hand, your blog might have the potential of readership growth and ad revenue growth if properly managed, and possibly also spinoffs leveraging your brand, such as merchandise: BlogX t-shirts and BlogX hoodies and BlogX liquor flasks; or the 1 week BlogX School of Bloggerly Thinking course held every year in Asheville, NC at a cost of $2500 per attendee. In this case, valuation would take into account these future prospects and ownership shares in the company would trade at a higher multiple of future earnings to account for them.
These are real headscratchers, the sort of things that keep very clever people in business as financial analysts. I'm sure someone with more knowledge will drop by to expand further on the specifics of how to calculate operating income and what multiple to use to value it.
posted by ikkyu2 at 11:10 PM on December 3, 2006
Of course the answer is "Whatever they'll pay" but I think the question is: "How to decide how much to pay/charge?"
If you're talking about significant money you can hire an outside business appraiser.
A couple years ago I wanted to sell a large share of my company to a partner who was going to pay for it with a loan from his father. The father hired an appraiser before approving the loan. I found it an excellent exercise to make sure I had all my paperwork in order and they actually valued the company higher than I had.
Accountants typically provide this service.
posted by Ookseer at 8:02 AM on December 4, 2006
If you're talking about significant money you can hire an outside business appraiser.
A couple years ago I wanted to sell a large share of my company to a partner who was going to pay for it with a loan from his father. The father hired an appraiser before approving the loan. I found it an excellent exercise to make sure I had all my paperwork in order and they actually valued the company higher than I had.
Accountants typically provide this service.
posted by Ookseer at 8:02 AM on December 4, 2006
This thread is closed to new comments.
posted by Leon at 5:40 PM on December 3, 2006