Domain names are digital assets and similar to many intangible assets are hard to value for many business owners. Michael Cyger, Founder of DomainSherpa & Publisher of DNAcademy, made a great analysis of CARS.COM’s IPO, which gives insights to the valuation of the domain name.
Here are some extracts.
As part of any IPO, a newly traded public company is required by law to complete a Form S-1 and file it with the U.S. Securities and Exchange Commission (SEC). Digging through the S-1 document filed for Cars.com Inc on May 11, 2017, we start to learn a little more about how the value of cars.com was calculated.
As outlined in the Cars.com Inc SEC filing, the indefinite-lived intangible asset value, or the price of the cars.com domain name, is calculated by the “Relief-from-Royalty” method:
For the domain cars.com, this method considers the value created to the owner by historical earnings from the Cars.com website and how much future cash flow the domain name is expected to generate over its life.
The cars.com domain valuation requires a good estimate of future cash flows and their risk. To do this, estimates are calculated based on revenues received from advertising on the site, as well as historical data, in addition to public data such as keyword trends and searches.
All these factors are used to model projections for future cash flows.
The value of the domain name is the total of the line “Indefinite-lived intangible assets.”
The answer: $872 million for the domain name of cars.com. Wow!
Cars.com reported that the domain name represented 34 percent of company assets at December 31, 2016 – $872 million is approximately 34 percent of the $2.5 billion deal value. That amount of money could go a long way in pimping your ride….
The domain price is also referenced in the Form 10-K which the Gannett company filed with the SEC in 2014:
You can read the full article on DNAcademy.