As we prepare to release our SAI 25: World’s Most Valuable Startups list, we’re running through some final valuation numbers. One company that is a shoo-in for the list is Craigslist (yes, it has been around a while, but we’re defining “start-up” as private companies founded in recent memory that has yet to go public or sell out).
We’ve struggled to get formal business metrics for Craigslist, but ClickZ has summarized a recent report from Classified Intelligence that should help. CI estimates Craiglist’s numbers, but it has at least gone through the laborious process of counting listings, pageviews, etc.
So here are some metrics:
2007 Est. Revenue: $55 million
2008 Est Revenue: $81 million
Monthly Pageviews: 9 billion
Monthly Job Listings: 2 million
Monthly Ad Listings: 30 million
Let’s assume that each of Craigslist’s 25 employees costs about $125,000 a year, all in. That’s probably high–Craigslist is run like a non-profit–but it should be in the ballpark. This adds up to about $3 million of salary and other HR costs. Let’s assume that Craigslist will grow this year, and let’s assume that it spends another few million on prosaic costs like rent, insurance, travel, etc. Total estimated 2008 operating expenses: $7.5 million.
On the “cost of sales” line, let’s assume that Craiglist spends a boatload on servers and bandwidth to keep the site running smoothly. Craigslist’s content is not at all bandwidth intensive–all light text, no computation or transactive processing like eBay or Google–so this should keep its costs well below those of other huge global sites. Let’s call it $50 million a year. (This is probably high–grateful for any help in refining).
Add all that together and use the CI revenue estimate, and you have a business with about $80 million in revenue and, say, $25 million in operating profit. Apply a 10X revenue multiple and/or 25X operating income multiple, and you would have a company worth about $750 million. But obviously Craigslist is worth a heck of a lot more than that.
Craigslist’s Real Value
Why is Craigslist worth more than meets the eye? Because it’s run like a non-profit. Craig Newmark and co. don’t give a damn about generating revenue or profit, and more power to them. But if Craig ever want to sell Craigslist, he’d probably want to get something closer to true value for it–which means we need to think about the company’s real earning power.
Let’s assume that, instead of charging for job ads in only 11 cities, Craigslist charged for all job ads (currently 2 million a month). Let’s assume that it also charged for another 5 million of the 30 million ads on the site each month. Let’s assume that Craigslist users were so horrified by the outrage of being charged even a de minimus listing fee that two thirds of these listers stormed off in a huff so that the 7 million of paid listings dropped to, say, 2.5 million a month. And let’s assume that Craigslist charged its standard $25 job listing fee for all of them.
What would that generate in revenue? $62.5 million per month, or $750 million a year.
Let’s further assume that this outrageous affront to a minority of users–$25 per listing!–would require huge customer service and processing costs, so that Craigslist’s overall cost base jumped to $250 million a year. Then we’d have a business with $750 million in revenue and $500 million of operating profit.
Let’s put very conservative revenue and operating profit multiples on that–say 7X revenue and 10X operating profit–and we’re conservatively looking at a business worth $5 billion.
Thoughts? Speak now or forever hold your peace.
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