Eamon O'Reilly -
Domain Name Portfolio Sales Analyst, breaks
down the mechanics involved with
portfolio valuations and offers
advice on marketing domain
portfolios.
There are buyers,
professional domain investment
companies, with the capital to
move quickly on deals. Of course
they’re looking for value in the
domains they buy for the present
and the future. In this feature
we’ll take a look at the process
of preparing your portfolio for
a sale and how to find the right
buyers.
Is now the time for you to
cash in?
With so many new
opportunities out there it’s
tempting to look at what a cash
generating portfolio can be sold
for. Perhaps you’re interested
in getting in on the ground
floor and investing heavily in a
new TLD or maybe you’re looking
to buy UK or European traffic to
diversify your portfolio. Maybe
you’d just like to retire.
Whatever the case, if you’re
looking to move a portfolio and
your domains are of decent
quality, these days you have
many options for making a bulk
sale of many domains quickly,
and at a fair price.
Who is buying?
One of the most exciting
developments for the domain
industry has been the emergence
of institutional domain
investment companies; well
funded firms with the capital
and organization to move quickly
on purchases of large lots of
domains. Media companies, some
based on a ‘reverse search
engine’ concept have entered the
fray and domain companies have
even started acquiring cash
generating domains. Since
entering the buyer’s market
these companies have been a
financial boom to long time
domain portfolio holders who’ve
finally received the offers for
which they’ve been waiting.
Notable Recent Entries into
the Domain Aftermarket:
• 2004: Marchex pays $164MM
to acquire portfolio of 110,000
domains • 2005: Highland Capital
pays $80MM to acquire Buy
Domains (500K domains) • 2005:
iREIT launches with $250MM to
spend acquiring domain
portfolios • MySpace co-founder
launches Demand Media with
$120MM to spend
The latest crop of big-money
domain investors have entered
the market for various reasons.
Some come from the financial
arena and look at domain names
as another type of investment
asset, and therefore value
purely based upon cash flows and
quantitative metrics. Others are
experienced players in the
domain industry with knowledge
of both domain resale and domain
monetization, who are looking to
consolidate domain inventory and
secure their revenue streams.
What type of domains are
portfolio buyers looking for?
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want a Domain Valued - Click
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Portfolio purchases are never
speculative. Buyers are looking
for value now and down the road.
Price will always be based on
cash in and cash out. A
financial analyst would call it
a “discounted cash flow
analysis.” But what exactly are
these firms looking for?
Well, we can take some names
out of the equation altogether.
Professional Domain companies
avoid trademark infringing
domains. The potential to lose
the names or be litigated down
the road is too much of a risk
for these firms to bear.
Portfolios with little or no
parking revenue, or unprofitable
portfolios (portfolios where the
parking revenue does not cover
the registration costs) will not
generate much interest either.
Increasingly, vice domains
(domains in the areas of adult,
gambling, etc.) are also being
avoided by some buyers.
Companies that are going public
or planning on going public find
the potential negative PR not
worth the gain.
What buyers are looking for
are profitable, cash generating,
generic domains. Money making
generic domains with type-in
traffic may fetch upwards of 8
years revenue, although most
deals have taken place in the 2
to 5 years range. Domains with
expiring traffic from past
development will usually receive
offers of 1-3 years depending on
how long the traffic is expected
to last.
This is a business valuation,
not a domain appraisal. I
mentioned a discounted cash flow
analysis above. The operating
cash flow your portfolio is
calculated by adding traffic
monetization revenue (parking) +
sales and deducting ongoing
costs (such as registration
fees, legal and maintenance
costs, etc.).
The portfolio buyer will then
calculate the Net Present Value
(NPV) of the expected future
cash flows to determine a fair
value of your portfolio. NPV is
a financial concept which is
summarized by the axiom that
$100 today is worth more than
$100 one year from now. It uses
a discount rate to calculate the
future value of cash flows, as
represented by this chart:
You’ll often hear valuations
cited in terms of “X” number of
years of revenue. This is a
highly-simplified way of looking
at valuation which is used as a
quick point of reference. The
multiple of the number of years
worth of revenue the buyer is
willing to offer is based upon
the growth potential of the cash
flows. Non-cash generating
names, and risky names that
might be taken away or lead to
litigation will devalue a
portfolio. If there’s a
potential for increasing
earnings (for example, a
significant number of domains
focused on emerging markets or
technologies) this will
certainly be taken into account
as well.
Preparing your portfolio
for sale
The buyers I’ve mentioned
above are as well organized as
they are funded. They’re
definitely looking for
opportunities to invest but not
without first scrutinizing their
prospective acquisition.
The 5 essential steps to
prepare:
1. Prepare an EXACT list of
the domains you would like to
sell. You won’t find any offers
if you’re not up-to-date on
which domains are about to
expire, have already expired or
already sold. The exact list of
domains available is an obvious
first step.
2. Detailed traffic stats. As
mentioned above, portfolio sales
are cash flow based
transactions. If you’re looking
to move a portfolio, have all
the relevant stats ready at
hand: unique visitors, click
through rate, earnings per
click, total earnings and
traffic origins (geographical
breakdown and top referrers).
Make sure this data is recorded
over an extended period of time.
Most buyers require at least a
year of traffic data. Make sure
to park with a company that will
provide you this information in
real time.
3. Sales history. Even though
some domains originally in the
portfolio may have already been
sold it’s of great interest to
the buyer to see what you’ve
been able to move in the past,
how often you’ve been able to
sell, and for how much. Traffic
isn’t the only cash flow meter
that will be scrutinized. The
most competitive portfolio
buyers, in my experience, will
also factor in prospective sales
revenue.
4. Relevant costs. It’s not
just the cash generated that
will be looked at, it’s also the
cash expenses. Registration
fees, transfer fees, and
potential legal fees for
problematic domains all need to
be considered. Not all of these
apply to every portfolio but, in
general, this is something a
portfolio buyer will factor into
their analysis. Be ready to show
potential buyers how much they
should expect to pay for
maintenance.
5. Your price expectation. A
portfolio without a price will
not receive an offer.
Finding the Right Buyer
Of course there’s a lot of
discrepancy that can be expected
between offers for an entire
portfolio of domains. The use of
different metrics to evaluate
performance, the nature of the
purchasing company’s business
model and their expectations for
immediate gain and future growth
will all dramatically affect the
final bid. So how do you know
you’re getting the best offer
for your portfolio?
Some key questions to ask
prospective buyers:
1. Do they take resale value
into consideration? This is a
key metric. Discussing your past
sales and having the buyer take
resale value into account can
add significantly to the final
offer.
2. Are they able to make more
money from the domains than you
are? If the answer is yes, then
great! If they can make more
they will offer more. Economies
of scale and other synergies
often allow professional buyers
to pay a premium over what the
domains would be worth to you.
3. Do they understand the
market? Don’t let yourself be
intimated by expensive suits and
financial jargon! If the buyer
lacks a solid grounding in the
domain market, you may do better
elsewhere.
You have several options
for finding a buyer:
1. Go it alone. Attend domain
events like TRAFFIC or the
SedoPro Partner Forum, research
who in the media is acquiring
domains and market directly to
them, or rely on your network of
colleagues to generate leads.
2. Seek professional
representation. Investment banks
or well-connected domain brokers
make it their business to know
who is in the market to buy and
where the best offers are coming
from. You’ll want to make sure
they have the reach to secure
offers from anywhere in the
world too. The domain market is
a global one and if you’re not
tapping every market for buyers
you could wind up dramatically
underselling your portfolio.
Institutional domain investment
companies aren’t just an
American phenomenon. You might
find the most bullish offers
come from an Asian, European,
Australian firm or elsewhere.
In the end the preparation is
worth the effort. Make sure your
portfolio data is in order.
Partner with a parking company
that will give you all the tools
you need in order to maximize
the long term value of your
domains, have immediate answers
to all the commonly asked
questions and don’t be afraid to
ask buyers how they’re
evaluating your portfolio. Use
the advice above and you
shouldn’t have to wonder if you
have received the best price for
your portfolio.
Do you have a Domain Name
portfolio you’re interested in
selling or having us manage ?
Contact Eamon O'Reilly,
Portfolio Sales Analyst, at
eamon@dotlease.com
for a free consultation on how
best to market your domains.
If you
want a Domain Valued - Click
Here
