Domain-name valuation of the day, ETF edition
Mick Weinstein has the sales brochure from the firm selling the domain name ETF.com for $9.5 million. It’s pretty thin stuff: apparently the domain got 108,140 visitors in 2010 doing very little of anything, and the sellers manage to value those visitors at $5.28 apiece, which makes the price seem almost reasonable. After all, a price of 18X trailing earnings is quite low, if there’s a lot of room for traffic and earnings growth, which there is. On the other hand, there’s no way that a random visitor to ETF.com is worth $5.28: the brochure assumes that every visitor to the site ends up clicking on one of the Google ads, which is ridiculous. If the current owners were being honest, they’d simply publish the amount of money that they’re currently making from ETF.com; I’m sure it’s less than half a million dollars a year.*
That said, we’re only at the beginning of the boom in ETFs, and I can easily see some big player in the space — BlackRock, perhaps — turning it into a glossy home for an asset class which already has over $1 trillion in assets under management. Let’s say the ETF.com domain gives you 0.5% more in the way of ETF flows than you would have without it, and let’s conservatively put the present value of future ETF inflows at $2 trillion. Then the domain would bring in an extra $10 billion of AUM; even at a razor-thin profit margin of 2 basis points, that’s $2 million a year in income. Which makes the $9.5 million price tag on ETF.com seem almost reasonable. And given that Fund.com sold for $10 million in 2008, there’s a clear precedent for deals at these eye-popping levels. Even in the ETF world, managing other people’s money can be extremely lucrative, given the enormous sums involved.
*Update: Weinstein leaves an important comment, explaining what the brochure means when they say the traffic “is valued at” a certain amount. The number isn’t the amount of money you’d receive by trying to monetize the traffic; instead, it’s the amount of money you’d need to buy that traffic, if you were using AdWords to drive traffic to your ETF site.
Weinstein also says that the SEC restricts the degree to which asset managers can run useful and interesting websites, which implies that some third party might be better off putting this deal together, and then doing a separate deal with a fund manager.