E-Commerce Projections & Valuation

Hi Guys,

I am currently working on a business project for an e-commerce platform. The firm is in very early stage. However, we're trying to project Unique Views (UV) and Page Views (PV) for the next 3 years along with the conversion rates.

My question is therefore twofold:
- Do you have any templates, guides or knowledge regarding e-commerce projections and more specifically, re: UV, PV and conversion rates? The difficulty here is that the firm plans to enter different markets, implying different growth rates, etc.
- Second, moving on to the valuation part, what is the average cash flow multiple you would use for such a model?

Thanks in advance!

Cheers.

 

re: conversion rates, are you referring to the proportion of users on the site who actually buy something?

If so, my understanding is that unless you radically change something (like RADICALLY), conversion rates don't change much. That information is useful to you if you're far enough along that you can already measure current conversion rates.

E.g. Company A is converting 7% of visitors to sales. Company A makes payment easier by switching to 1-click confirmation, they still convert 7%. Company A decides to include/get rid of banner advertising, they still convert 7%. Company A changes the product they are selling from general retail to used cars, they now convert a number other than 7% (presumably less).

Something else that I think is true is that you convert much lower on traffic brought from PPC advertising such as google adwords.

 
Best Response

Well, a DCF would be useful if we could accurately predict future cash flows. Just because the company in question raised money at "x" valuation, doesn't necessarily mean it can convert the financing into cash flows. Best bet here would be to assign a multiple (maybe a unique one) that is most relevant to the company's industry.

Depending on if the company has revenue or not, you can use actual multiples for metrics (EV/REV, EV/EBITDA, etc..). If the company does not have revenue you will most likely need to look at the market as a whole (top-down), and calculate market share. You could also build from the bottom up, assigning a revenue figure based on avg price per product (or service), # of customers, etc...

Or obviously the shortcut would be to look at what the VC round valuation was. After all, that is technically what the "market" is valuing the company at.

Not sure if this was what you were asking for. I am by no means an E-Commerce expert, so take this with a grain of salt.

 

Thanks for your insights. Your answered a part of my question. I met a banker the other day at a city conference and as he said " the ecommerce boom is going down because the market is valuing them a dollar to a cent". The market relies on the VC/PE Valuation but it's more of a 'qualitative' than a quantitative valuation. Enough said, I too hope to blend in the world of narcissists soon.

 

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