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If Craigslist makes ~600M in profit, Why the hell is Forbes giving them a valuation of 3B? That's a Price to Earnings ratio of 5. That's not conservative, that'

by ouid 9y ago

If Craigslist makes ~600M in profit, Why the hell is Forbes giving them a valuation of 3B? That's a Price to Earnings ratio of 5. That's not conservative, that's insane. Am I missing something?

debacle 9y ago
For companies that aren't going to eat the world, only exist on the network effect, and are happy in their space, a P/E of 5 is reasonable. How much would you pay to buy craigslist?
- wand3r 9y ago
  I assume they could effortlessly ramp to $1B if that estimate is semi-close. It would cost virtually nothing to add more paid markets and services; maybe allow the gravity algo to be tweaked. Figure very low costs for a site like that you could make your money back in 5-6 years; which is insane at that scale. I bet if they put it up for sale for $3B it would be sold by the end of the week
- eanzenberg 9y ago
  At least 10x their yearly profit? What other investment provides a consistent 10% yearly return on the scale we're talking about? At P/E ratio of 5, you literally just wait 5 years and you've just made as much as your initial investment.
  - AnimalMuppet 9y ago
    If you get five years before someone disrupts it. That's not a given.
    - accountyaccount 9y ago
      Given craigslist has been around for 20 years I think it's fair to assume they could take an upwards of 5 years to unseat. Even Myspace continues on to this day.
- ouid 9y ago
  A p/e of 5 is NOT reasonable. Has everyone gone mad? Blue chips run at about 20. Therefore I would pay 10B for craigslist in a heartbeat. I could probably even get a bank to loan me the money.
wand3r 9y ago
I think largely because they are estimates; I think Craigslist is likely worth way more given the ubiquitous nature, high margin, low costs and the decisions to not monetize everything. That said, IMO this article is not about Craigslist but a subtle advert for the 2 "competing firms" that are mentioned. I have seen an uptick in articles about Craigslist mentioning them and had never heard of them before. Potentially cynacism on my part.
- samclearman 9y ago
  Well spotted.
- ouid 9y ago
  I read the article and still haven't heard of them...
  - wand3r 9y ago
    I'm passed edit window; but Google: "craigslist" + "offerUp" You will see a lot of articles about how Craigslist makes money; is dangerous; potential revenue models; is going to finally get dethroned. The one that made me think a campaign to promote these 2 companies was about bad site design.
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yeukhon 9y ago
If 600M is profit (not revenue), that's 400M short from 1B. That's not a bad valuation, also consider the user base is quite strong. Using both yield 3B is very conservative IMO. If you buy it for 3B, then you will get your investment worth in a couple years.
- ouid 9y ago
  they said "most of 690M is profit" in the article. I used bayes theorem to go through all of the numbers out of 690M that I would have said "most" for, and arrived at a guess of 600M. Even if it were the lower bound of values for which the word "most" technically applies that's still earnings of 345M. An 11% a year on an investment of 3 billion. That's still insane. CL revenue is not terribly speculative.
  - yeukhon 9y ago
    I am not much of an investment person, but 600M for a classified site is actually pretty impressive for an old, well-established company. If they are able to maintain a high profit with low operation cost, then buyer can project more earning in the future. There is no absolute Craigslist will always make 600M a year. They may lose 10M next year or go bankrupt in ten years. So for 3B for the ten-year forecast (I don't have the data) may not be all that insane. I'd say if 3B is insane, look at all the startups out there, valuation is 10x more and they barely make any profit.
    - ouid 9y ago
      I think you are assuming that I meant insane in the sense that this was not a conservative estimate. That's sort of what I said, but it's clear from context that I meant the opposite. This estimate seems far too conservative to even count as an estimate, more of a trivial lower bound.
      - yeukhon 9y ago
        Actually when I read it again it still sounded like you think the valuation is too high. I think this is because you instantly said insane after saying the valuation is 3B. That's how I read it "that 3B valuation? It's insane." It is hard to guess which sentiment was applied. But now you cleared up your opinion on this, I appreicate it. You were trying to say "3B valuation? Wow that's impressive!"
mrweasel 9y ago
Snap and Twitter both have valuation much higher than $3 billion and have zero profit. I would agree that the valuation seems high, but not compared to other tech companies.
- ouid 9y ago
  The valuation seems absurdly low.
- deleted 9y ago
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by ouid 9y ago

If Craigslist makes ~600M in profit, Why the hell is Forbes giving them a valuation of 3B? That's a Price to Earnings ratio of 5. That's not conservative, that's insane. Am I missing something?

debacle 9y ago

For companies that aren't going to eat the world, only exist on the network effect, and are happy in their space, a P/E of 5 is reasonable. How much would you pay to buy craigslist?

wand3r 9y ago
I assume they could effortlessly ramp to $1B if that estimate is semi-close. It would cost virtually nothing to add more paid markets and services; maybe allow the gravity algo to be tweaked. Figure very low costs for a site like that you could make your money back in 5-6 years; which is insane at that scale. I bet if they put it up for sale for $3B it would be sold by the end of the week
eanzenberg 9y ago
At least 10x their yearly profit? What other investment provides a consistent 10% yearly return on the scale we're talking about? At P/E ratio of 5, you literally just wait 5 years and you've just made as much as your initial investment.
- AnimalMuppet 9y ago
  If you get five years before someone disrupts it. That's not a given.
  - accountyaccount 9y ago
    Given craigslist has been around for 20 years I think it's fair to assume they could take an upwards of 5 years to unseat. Even Myspace continues on to this day.
ouid 9y ago
A p/e of 5 is NOT reasonable. Has everyone gone mad? Blue chips run at about 20. Therefore I would pay 10B for craigslist in a heartbeat. I could probably even get a bank to loan me the money.

wand3r 9y ago

I think largely because they are estimates; I think Craigslist is likely worth way more given the ubiquitous nature, high margin, low costs and the decisions to not monetize everything. That said, IMO this article is not about Craigslist but a subtle advert for the 2 "competing firms" that are mentioned. I have seen an uptick in articles about Craigslist mentioning them and had never heard of them before. Potentially cynacism on my part.

samclearman 9y ago
Well spotted.
ouid 9y ago
I read the article and still haven't heard of them...
- wand3r 9y ago
  I'm passed edit window; but Google: "craigslist" + "offerUp" You will see a lot of articles about how Craigslist makes money; is dangerous; potential revenue models; is going to finally get dethroned. The one that made me think a campaign to promote these 2 companies was about bad site design.

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yeukhon 9y ago

If 600M is profit (not revenue), that's 400M short from 1B. That's not a bad valuation, also consider the user base is quite strong. Using both yield 3B is very conservative IMO. If you buy it for 3B, then you will get your investment worth in a couple years.

ouid 9y ago
they said "most of 690M is profit" in the article. I used bayes theorem to go through all of the numbers out of 690M that I would have said "most" for, and arrived at a guess of 600M. Even if it were the lower bound of values for which the word "most" technically applies that's still earnings of 345M. An 11% a year on an investment of 3 billion. That's still insane. CL revenue is not terribly speculative.
- yeukhon 9y ago
  I am not much of an investment person, but 600M for a classified site is actually pretty impressive for an old, well-established company. If they are able to maintain a high profit with low operation cost, then buyer can project more earning in the future. There is no absolute Craigslist will always make 600M a year. They may lose 10M next year or go bankrupt in ten years. So for 3B for the ten-year forecast (I don't have the data) may not be all that insane. I'd say if 3B is insane, look at all the startups out there, valuation is 10x more and they barely make any profit.
  - ouid 9y ago
    I think you are assuming that I meant insane in the sense that this was not a conservative estimate. That's sort of what I said, but it's clear from context that I meant the opposite. This estimate seems far too conservative to even count as an estimate, more of a trivial lower bound.
    - yeukhon 9y ago
      Actually when I read it again it still sounded like you think the valuation is too high. I think this is because you instantly said insane after saying the valuation is 3B. That's how I read it "that 3B valuation? It's insane." It is hard to guess which sentiment was applied. But now you cleared up your opinion on this, I appreicate it. You were trying to say "3B valuation? Wow that's impressive!"

mrweasel 9y ago

Snap and Twitter both have valuation much higher than $3 billion and have zero profit. I would agree that the valuation seems high, but not compared to other tech companies.

ouid 9y ago
The valuation seems absurdly low.
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