Opinion

Felix Salmon

Domain-name valuation of the day, ETF edition

By Felix Salmon
June 6, 2011

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.

Comments
3 comments so far | RSS Comments RSS

Your “18x trailing earnings” (credit where due: at least you START from reality!) assumes that the phrase “ETF” itself remains a Preferred Investment Vehicle.

The risk associated with that does not seem insignificant.

Posted by klhoughton | Report as abusive
 

The brochure doesn’t actually imply that each visitor clicks on a Google ad. Their $5.28 valuation is based on what it would cost buy the existing organic traffic via AdWords SEM – it doesn’t refer to conversions: “In terms of Google AdWords search advertising rates for the keyword ETF, ETF.com’s organic search and direct type-in traffic is valued at US$536,720. This savings is delivered to the owner of ETF.com without advertising or marketing expense, on an annual and on-going basis.”

Agree that the existing owner is probably making very little from AdSense, but it wouldn’t be an easy thing for an ETF provider like BlackRock or State Street to use it directly for marketing purposes. SEC advertising rules would restrict their ability to create a dynamic, high traffic site that’s closely tied to their products, providing the kind of direct “ETF flow” you describe. That’s why these domains tend to go to external lead gen businesses (QuinStreet, etc.).

But one option could be to set up an arrangement like Van Eck has with IndexUniverse on HardAssetsInvestor.com. The content of the site is created/edited by the IU team, but the site is “sponsored” (owned?) by fund provider Van Eck “for informational and educational purposes only.” It’s an indirect way for Van Eck to market their products, and in this case they’ve chosen a very smart and capable third party editorial provider. But I don’t know if it has regulatory blessing.

Posted by MickWeinstein | Report as abusive
 

people I’ve read stuff from.8) http://www.orbitbooks.net/2012/1 1/21/red-country-is-a-new-york-times-bes tseller/ Thanks for posting when you’ve got thepportunity, Guess I will just book mark this web site.2) Thanks for sharing this searach

Posted by ass | Report as abusive
 

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