How to do Valuation of Domain and Hosting Company – India
A lot of friends generally ask me what sort of valuations we could have for a Domain and Hosting company in India. Many of them thinks, they will get 3 – 5 times of turnovers.Practically, it’s not possible.
In general valuation of hosting company is consider in following manner ::
1. Size of company ( Turnover )
2. Profitability ( In hosting 30%, In Domains 2 – 5 % )
3. IP ( Intellectual properties )
4. Growth rate ( It’s generally 8 – 10% )
5. Customer type ( Resellers / End Users / Corporates )
Based on these, I divided valuation of Domain and Hosting Company in 3 parts ::
1. Hosting Turnover
2. Domain Turnover
3. Intellectual properties and Brand Value
And Acquisition size in 3 type
1. Turnover < Rs. 25 Lakh / Year
2. Turnover > Rs. 25 Lakh / Year but < Rs. 5 Cr. / Year
3. Turnover > Rs. 5 Cr.
Now with considering above 3 Scenario of company sizes, we calculate valuations dividing turnovers in hosting and domain turnovers separately.In general, 3rd point in valuation ( Intellectual properties and Brand Value ) is not applicable for companies having turnover less than 5 Cr.
Case 1. Turnover < Rs. 25 Lakh / year
In this type of acquisitions Domain Turnover is not taken in consideration. In general whatever hosting turnover, almost equal amount of valuation considered. Say if Turnover is 20 Lakh, Domain Turnover is 8 Lakh and Hosting Turnover is 12 Lakh, then approx. 12 Lakh valuation is considered.
Few People also consider with no. of Customer * 1000 or 1500 Rs. per customer value.
In short Basic Formula in this category ::
Valuation = ( Hosting Turnover * 1 )
Case 2. Turnover > Rs. 25 Lakh / Year but < Rs. 5 Cr. / Year
In this type of acquisitions Domain Turnover and Hosting Turnover taken in consideration.
Basic Formula in this category ::
Valuation = ( Hosting Turnover * 1.5 ) + ( Domain Turnover / 5 )
Case 3. Turnover > Rs. 5 Cr. / Year
In this type of acquisitions Domain Turnover and Hosting Turnover taken in consideration with Brand Value and Intellectual properties.
Basic Formula in this category ::
Valuation = ( Hosting Turnover * 1.5 ) + ( Domain Turnover / 5 ) + Brand Value + Intellectual Properties Value
The valuation of Brand and Intellectual properties is decided on mutual understanding and willingness.
These are tentative amounts, again if companies turnover is more with resellers and domains, the multiplier factors drops. i.e. Less value for companies with more reseller turnovers.
In general most companies have 60% Turnover in Hosting and 40% in Domains. These companies should get almost Equal value to their Turnovers considering at least 50% of their hosting turnover is with end customers ( 1 X Turnover )
If your hosting turnover with resellers is more, for every 10% variation, 10% reduction in valuation can be provisioned. i.e. say, end customer hosting turnover is 30%, then multiplier factor for hosting turnover ( 1.5 ) will be reduced by 20% to 1.2.
If your Domain turnover is more ( say 80% ) , practically your valuations are nothing ( 20 % Turnover * 1.5 + 80% Turnover / 5 ) which comes to approx 0.35 X Turnover.
Important :: These valuations are for at least 8 – 12 % YoY Growth in last 3 yr. If Growth is less than this or negative, valuations will drop as per.
In Case 3, Valuations of Brand and Intellectual Properties can be calculated from Independent Agencies.
Disclaimer :: These are personal views of the Author and could be considered for reference purpose only. Actual business valuations should be under the observation of Expert Auditors.