In the wake of Microsoft’s aborted courtship of Yahoo and Jerry “Oh, did you increase your offer?” Yang, there’s bound to be a lot of scrutiny about what’s next for Yahoo.
One asset that’s well known but perhaps not scrutinized from an investment perspective is Flickr, the world’s most popular photo-sharing site that Yahoo picked up for a song (estimated $40-million) in 2005. Today, Flickr attracts more than 44 million unique visitors a month, according to Comscore, while Compete.com reports Flickr had 30 million unique visitors and 70.2 million page views in the U.S. last month.
Despite Flickr’s popularity, it is arguably under-monetized. In terms of advertising, it’s minimal at best. Instead, Flickr makes most of its money by selling Flickr Pro memberships for $24.95/year and offers e-commerce services through partners such as photocards, posters, frames and calendars.
So, what’s Flickr worth, and, more important, what could it be worth if it was managed more aggressively?
Let’s do some back of the envelope calculations based on its current financial model. If you assume 10% of its 44 million unique visitors have Flickr Pro accounts, that’s about $110-million in revenue; if it’s only 5%, it’s $55-million. Then, add another $10-million in e-commerce commissions.
What you get is revenue of $65-million to $120-million. If we now take Henry Blodget’s 25X revenue formula (which he applied to Facebook), Flickr is worth $1.5-billion to $3-billion.
Scenario II: Flickr Monetized Better
With online advertising gaining so much traction, Flickr would be a very attractive target given its traffic and user demographics. For the sake of argument, let’s assume Flickr changed business tactics and introduced two high-profile advertising slots throughout the service. I choose two because it would be significant without pissing off most of Flickr users, who regard Flickr as their personal property and are resistant to change of any kind.
If Flickr could get $5/CPM, that would generate $10-million in advertising/year based on the assumption it’s getting about 100 million global pageviews/month. It’s not a lot of revenue given the conservative approach to how much advertising Flickr would present and how much it would charge but, nevertheless, it would give Flickr an additional $250-million based on Blodget’s formula.
Then, you’re looking at a company worth $1.75-billion to $3.25-billion. Add on a takeover or IPO premium of perhaps 25%, and you’re looking at a valuation of $2.2-billion to $4-billion.
More: For a story on Flickr’s growth and success, check out this story in USA Today. Here’s Blodget’s list of the 25 most-valuable privately-owned startups. As well, Mashable’s Adam Ostrow calling MySpace “the biggest steal in Internet history”
The graph below looks at the number of unique visitors last month for Facebook, Flickr and Photobucket, which was acquired by News Corp. last year for $300-million.
30 Comments
$4B for Flickr?…25X revenue? Mark, this is more voodoo economics…and some might say link bait. Let’s get back to reality.
E Guy,
It does appear pretty high but if you look at the companies on Blodget’s SAI25, it seems like a reasonable valuation all things considered. Of course, valuation is relative, isn’t it!
Mark
Flickr is worth 4 billion because you guessed at its freemium conversion rate and the introduction of advertising, then ran it through a multiplier chosen by a guy banned for life by the SEC? At the least, this is unpersuasive.
Who owns Flicker.com?
Blodget? Charged with securities fraud and banned from the securities industry for life for hyping up stocks doesn’t, in my mind at least, equal a reliable source in this situation.
Flicker.com is owned by entrepreneurs Sahar Sarid and Jeff Bhavnanie, who operate a site called Assista.com.
Peter,
My methodology may be far from perfect but it’s just a theory as opposed to serious number crunching.
Mark
Rob,
If Blodget’s not a reliable source (It is amazing he’s back in the investment game), what do you think the revenue valuation should be?
There was a very interesting post by Flickr’s George Oates about the building and the peculiarities of the Flickr community on A List Apart the other day: http://alistapart.com/articles/fromlittlethings
4-10x revenue is a fairly common valuation model for tech companies, depending on growth. YHOO is on the low end of that range (5x revenues), while GOOG is on the high end (10x revenues). MSFT is at 4x revenues, SUN is at 1x revenues.
If the company has *earnings*, those are an even better valuation metric. For high-growth tech companies, P/E ratios tend to range from 20 to 35 lately (mature companies have P/Es of about 15-20 in this market). It’s hard to say just what Flickr’s earnings would be – that depends on their expenses, which may be hard to figure when they share infrastructure with the rest of YHOO. Say that they’re making 25% margins on $80M revenues, which is fairly typical of tech companies. That’s $20M earnings, which at Yahoo’s P/E of 35 is worth $700M. Still a good figure, and it means Yahoo’s purchase really was a steal, but nowhere near $4B.
Blodget’s a nutjob. 25x revenue for FaceBook is insane.
Well, he’s not back in the investment game, he’s back in the hype game. Thankfully he’s not allowed to be inside the walls any more. Unfortunately that means he’s now unfettered in his ability to hype for his own means (in this case, traffic.) As for what it’s worth, I’m not really sure. I’m not an accountant. I just know a metric like 25x revenue has me flashing back to 1999-2000. e.g. Walmart @ 25x revenue is an 8 TRILLION dollar company.
Jonathan: Thanks for the financial insight. Much appreciated!
Mark
“Blodget’s a nutjob. 25x revenue for FaceBook is insane.”
The funniest thing about that is that the above metric only gets Facebook to 9 Billion, well short of the 15 Billion figure that so many people swallowed when MSFT threw cash at them.
You must not be a Flickr user.
If you were, you’d know that Flickr users would not put up with lots of ads on these pages. Part of the appeal of the site is its clean visuals.
$5/CPM & 5% freemium conversion?? – I love armchair analysts like you
Charlie: I appreciate how Flickr users love the UI, which is why I proposed two ad slots as opposed to swamping the site. Of course, I expect many Flickr users won’t like any advertising at all.
Mark
Some of your assumptions are way off here. Let’s look at visitors vs. publishers. 44 million unique visitors does not mean they all use the service to publish photos. In fact the majority of them are probably just viewers. I’ve heard there are ~7.5 million publishers on Flickr.
Let’s use this number to calculate the potential subscription revenue they might be generating. I think 5% is way to aggressive and 10% is insane. Let’s say realistically that 2% of the 7.5 million publishers are Pro subscribers. That translates to $3.5 million/year. Double that and it’s still waaay under your $55-110 million estimate.
If we assume they are making your estimated $10 million from transaction rev shares and apply your 25x multiple, we’re looking at a valuation around $337 million or about 10x what Yahoo paid 3 years ago. I’d say $330-450 million is much more realistic figure for Flickr’s true value.
These kinds of valuation metrics always seem to leave out how profitable the business can actually be, and what kind of growth potential exists. Businesses aren’t really valued on revenue multiples, but on future earnings and cash flow. Everyone talks about revenue multiples just because we’re often dealing with early stage companies, but saying 25x revenue doesn’t appear to be informed by any math on the underlying economics of the business.
I’d say the 100 million monthly pageviews is a significant underestimation, but overall that the inventory is generally very low value and would struggle to generate even $5 CPMs.
A far better approach would be to offer more differentiated tiers of service and really think through the freemimum model. On a user base of 25 million registered accounts (which I think is the number) it should be possible to have 10% paid, including many at higher price points than the current Pro amount.
By the way, I have it on pretty good authority (from a relatively senior ex-Yahooer) that Flickr currently loses money, so much of its value today to Yahoo! is really that it’s an anchor that keeps the user base attached to the mothership.
No offense, but anyone who thinks *advertising* is the best way to monetize Flickr really hasn’t thought about it. Screw pageviews – Yahoo is sitting on top of one of the most extensive and well indexed collections of intellectual property in the world.
Monetize the content, not the page views. Three easy ways:
1. Buy someone like Shutterfly, and let users buy prints through Flickr directly instead of third parties. Yahoo reaps the entire profit margin.
2. Same thing – and also let users *sell* their work through Flickr. Users would love this; and Flickr is so dominant in this space that it would quickly become the go-to place for art buyers. More pro photographers would follow and set up accounts just because that’s where the buyers are.
3. Let users sell images as stock photography. The stock photo industry is pretty big. Getty just sold for ~$1 Billion, and Flickr is superior to them in many ways. Flickr could quickly dominate the space – and again, users would love this.
Flickr could be a huge marketplace for image buyers and sellers. But to do that, they’d have to re-focus on servicing photographers rather than diluting their focus (on stuff like video).
AMEN, brother well said!!
If Flickr is currently worth even $1 billion I would be suicidal if I had sold it to Yahoo for the low price it went for.
I love Flickr. Fortunately I don’t have to value it. As a piece of a larger entity it’s a very hard thing to do. The old corporate “P&L” concept for divisions doesn’t really work as well when everything meshes together, and you’re fighting to keep users engaged in your overall user flow/experience/brand/world.
Henry Blodget’s 25X revenue formula would give Apple computer a 700B market cap.
Mark,
I believe your $5 CPM target for 100% of Flickr’s ad inventory is optimistic. Typically, large sites like that will at best sell 30-50% of their inventory directly to advertisers. The rest will be monetized via ad networks.
In the case of Flickr, where we’re talking about user generated content and a high number of page views per user session (i’m guessing on the latter), the sell-through rate will be closer to 20%.
You might assume $5 CPM for 20%. The rest will be monetized through ad networks, at probably no more than 50 cents net revenue to the publisher. Use the AdPrice Index (www.adpriceindex.com developed by PubMatic, where I work) as a gauge.
Your new monetization rate is now $5.00 X 20% + $0.50 X 80% = $1.40. Your $4 billion valuation is now $1.12 billion.
- Rajeev Goel, Co-founder, PubMatic
Rajeev,
Good points on the sold vs. unsold inventory.
cheers, Mark
Despite some fuzzy logic to Flickr’s valuation, it’s STILL worth way more than what Yahoo! paid for it.
Who are you folks who consistently assume 5-10% conversion rates to premium paid packages from free? Flickr would be doing extremely well if that number was 1-2%.
While an interesting exercise, it’s postulations like these that fuel ridiculous over-valuations and ultimately destruction of shareholder value for acquirers.
Flickr already has IAB standard ads
to be more specific, they appear to all non-pro members. So if you aren’t signed in, you can see them. You might want to check out the site; there’s one right on the homepage.
FYI, Flickr is not the most popular photo sharing site on the Internet – Facebook is. But then again, I guess it all depends what metric you focus on when you say “most popular”, and how you define “photo sharing site”…
Nonetheless, Flickr is still a wicked property – just want to keep things honest
What is Flickr worth? Whatever somebody is willing to pay for it obviously if it was sold tomorrow! The best point I've heard so far is that Flickr is part of a larger coporate entity that ties in with their overall marketing mix. As a Pro member I would like to see Flickr offer click through revenue generating capability for it's Pro users if advertising were to come to Flickr. The content side of Flickr is gold and the ability to organise large collections efficiently is a godsend to any photographer generating a lot of content. I used to work for a large online publishing/legal publishing company who were trying to figure out how to moneterize their content too. Believe me that doesn't happen overnight.
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