Buying and Selling Websites – Part 1

Buy a website, renovate it and sell it. Sound easy? If you consider that the renovation can be outsourced for $5 per hour online then perhaps it does. Being a fan of Ed Dale I was recently watching his YouTube videos on “Dominiche” which was his teaching course this very topic. A Google search “buying and selling websites” will provide you with opportunities to browse sites for sale and examine the associated revenue, profitability and valuations.

Coming from a financial background I was most surprised by the valuations of these sites. Usually, businesses are valued on multiples net profits (basically revenue with all product, operating, financing and tax costs deducted). Net profits are commonly referred to as “earnings” by investment professionals and in this way the Price-To-Earnings ratio (PE) tells you the how expensive or cheap a business is. For example, if a business generates $1m of annual earnings (net profit) and it is sold for $10m then the PE is 10.

Buying And Selling Websites - Flippa

Buying And Selling Websites - Flippa

Now, keeping in mind as I type this the average PE of all the stocks in the S&P 500 index is 15.7 can you tell me why, when I look at the web sites for sale on www.flippa.com they seem to be selling for an average PE of 1? Surely, this is bargain of the century to be able to pick up these online businesses that will pay for themselves in 1 year (as oppose to 15.7 years for the S&P 500 companies)?

Check back tomorrow to see my answer in the next post…!