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How Much is an App Business Worth?

How much is an App worth? Buying and selling a bricks and mortar business is common place, it happens all the time, the prices are simple for most experienced accountants and bank managers to work out using a range of formula’s. The business could be a restaurant, retail store, wholesaler or some other type of trade and a similar business would have been sold before to compare with. However with the advent of the digital era, Internet related businesses are much harder to value realistically due to various factors and the global nature of these businesses.

So if you are looking to buy or sell an Internet based business what should you do?
One thing to bare in mind is that Internet based business have been bought and sold for prices that are mind boggling, with some who question the logic behind such purchases. Some of recent purchases of businesses with less than 1 to 2 years trading are beyond belief, where Apps with less than 2 years in the making are bought for $1 billion.

Facebook has broken all records for 2 recent App purchases. The recent purchase of WhatsApp for $19 billion, has mostly likely set some new world record for an App purchase by any company. WhatsApp a company only setup in 2009 has had offers from the likes of Google of $1 billion but turned them down. Then comes Facebook out of the blue and offers $19B which no company can refuse, its an insane amount of money, but who would refuse.

Twitter IPO $TWTR @ $26
The 160 character social network Twitter went public with an IPO price of $26 per share at a valuation of $14.2 billion, which has not made a profit for the last three years. At the start of trading the shares jumped almost 78% to $50 making several people millionaires overnight.

The recent purchases of Waze by Google has yet again questions the rational for paying such high prices for these businesses and are they really worth such high price tags.

How to Work Out App Prices?

To compare the current price hikes, it may be worth looking at some past history of prices paid so that we may start to get a better picture.

Waze was acquired by Google for $1.1B.    (6/11/13)

1999 Yahoo Buys for  $5.7 billion
Back in 1999 Yahoo spent a huge some of money acquiring a streaming media business for $5.7 billion at the peak of the dot-com bubble.

2011: Microsoft buys Skype for US$8.5 billion
Skype was purchased in 2006 by Ebay for $2.5 billion, however the two did not work together and in the end Microsoft came to the rescue and purchased the company for US$8.5 billion

2006: Google buys YouTube for $1.6 billion
In comparison to the big buys of the dot-com bumble period the price Google paid for YouTube seems a bargain. The online king of Video still today retains its crown as the one of the top internet sites with millions of viewers.

2008: AOL buys Bebo for $850 million

Launched in July 2005, Bebo has steadily risen to become one of the world’s most popular social networking sites in the UK, Ireland, and New Zealand, and was the third largest social networking site in the US behind only MySpace and Facebook. Users can create profiles on the site for free, stay connected with friends, watch videos, and listen to music. In early 2008 Bebo had over 34 million registered users and 7 billion monthly page views.

Bebo was acquired by AOL on 13 March 2008 what then seemed like pocket money. However the purchase was a disaster and AOL then re-sold it to Criterion for less than $10M, with some sources indicating the deal was around $2.5M, Bebo filed for bankruptcy last month.

The deal that never happened: Yahoo's $1 billion bid for Facebook
In 2006, Facebook with less than 10 million users had offers rejected from Yahoo, Microsoft and Viacom

Tumblr acquired by Yahoo! for $1.1B
The new CEO of Yahoo! Marissa Meyer has made a bold start to her career with the bargain price purchase of the blog platform Tumblr.

GeoCities was acquired by Yahoo! for $2.87B. (1/28/99)
Yahoo! GeoCities was a free web hosting provider that launched in 1996. GeoCities offered a free website and all the tools required to build a hosted, dynamic personal site, and it was one of the most popular websites on the Internet.

Instagram was acquired by Facebook for $1.01B.  (4/9/12)

Summly was acquired by Yahoo! for $30M.    (3/25/13)
17 year old Nick D’Aloisio launched Summly in December 2011

$Billion Apps?
What can you get for $1 billion dollars, not much if you shop around, a blog or an App these days can cost you billions not millions. If your a start-up business the global reach can pay heaps of rewards. The recent purchases of Instagram, Waze, Tumblr and WhatsApp has shown that international brands can demand higher price than a normal bricks and mortar business. Whether these prices are justified can only be confirmed in years to come. However if you have a business and get offers, its always worth getting professional advice.

Let us know if you had any offers for any of your businesses.