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Moneysupermarket IPO and web business valuation
Whenever there is a website IPO, those of us with profitable websites pay attention. While a small, privately owned website will need to be valued at a steep discount to a large, listed business, it is a useful indicator of value.
Of course what interests me is what happens if we try to derive a valuation for Moneyterms from this.
With Moneysupermarket going for 29× 2007 earnings things look pretty good. Assuming that the growth in last quarter was above trend (as the propsectus admits), we can calculate a PEG on the 2005 to 2006 growth which puts it on a PEG of 0.46.
Vistor numbers at Moneyterms have nearly tripled over the last year, revenues have more than doubled and I aim to do better over the next year. That is a much higher rate of growth: as would be expected of a start-up.
To put Moneyterms on the same PEG would require a PE of about 40×.
There is also room to improve revenues per visitor as monetisation at the moment is just Google Adsense. Someone able to do direct ad sales, or a complementary business could do much better.
Moneyterms has negligible operating costs. I do put time into writing new material, but that is optional. It does help growth, but past performance suggests that it is not the main driver (there is no correlation between the rate at which new material has been added, and growth rates).
Low operating costs mean low operational gearing, which combined with the fact that it is unlikely that much new competition will appear (there is plenty of existing competition!), means that the downside risk is limited.
That all deserves a premium, as does control, although it is very difficult to quanitify.
Edit 07/08/2007: I accidentally omitted this: the premium would obviously be largely offset by the fact that a small unquoted business is worth a significant discount to a large quoted one, given it is an extremely illiquid investment. However, I would argue that a business that requires negligible management time deserves less of a discount than most small businesses. It is a revenue generating asset, and an owner who was not concerned with getting the highest possible growth could sit back and collect the cheques.
So, is anyone prepared to buy Moneyterms of me for, say, around 50× profit in the last twelve months?
If not, are you sure you want to buy Moneysupermarket at 30×?
Comments(2)
I find this article embarrassingly poor. I work in the industry and was just browsing around for some amateur comment on moneysupermarket.
This is just that – “amateur”.
Low operating costs mean HIGH operating gearing. I thought this was meant to be a definitions site!
I am an investment professional so should know what I am talking about.
How can you possibly compare your website moneysupermaket? Get a grip.
Low fixed costs means low operational gearing. Given the nature of the industry it is reasonable that most operating costs will be fixed.
You are confusing operating costs with variable costs.
I could have made it clearer, but it should be obvious to an “investment professional”.
It is perfectly reasonable to value a small business by reference to a larger listed one in the same industry (with appropriate discounts). Literally a textbook method (I can even remember seeing it in one of those BPP text books years ago, I suggest you do a little revision).
Are you suggesting that there is no link between the valuation of large and small businesses in the same industry? They are exposed to the same risks, except that the large business is likely to be better diversified. Either you are wrong, or CAPM is conceptually wrong. I am fairly sure which way to bet on that.
Personally, I think that this demonstrates the folly of encouraging accountants to think that they have a clue about investment.
I also notice that you are not sure enough of yourself to sign your comment with your real name. I will respect your wish for anonymity, but it does not exactly add to your credibility.
Are you willing to attach your real name to your views?
Incidentally, this is not a definitions site, it is a blog.
Has your employer just bought a load of moneysupermarket? If that turns out to be the case, I am going to find this very amusing.
Sorry, comments are closed
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