Hot or Not Valuation - $20M is way too low and is very likely wrong

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I am intrigued by the metrics and the factors related to the valuation of online enterprises (see here, here and here). Every time there is a new major acquisition, it gives us a new data point to calibrate the dynamics of the current market conditions and expectations.

Blogosphere is reporting that Hot or Not was acquired for $20M by a Canadian company, Avid Life Media. HotorNot is an online photo rating site that has a dating component to it.

HotorNot’s web strategy gives some insight in to the free vs. paid service models. HotorNot had a paid "premium services" model and they claimed that the conversion rate was very high (as much as 15%; typically it is 1 to 3% for similar sites). Then last April, in a very bold move, they changed their business model and decided to go the completely free route.

The site did see a huge jump in traffic; from 6M visitors per month to 10M visitors/month; the revenue from advertisements and virtual gifts increased, but not to the level that would make up for the lost receipts from the membership plans. Of course, a period of few months is not enough time to gauge the effect of a major transitions, but it was interesting to watch them go through the transformation.

With the free service, came spam; and I understand that they have gone back to the paid premium service model, mainly to protect the users from getting junk mail.

From the Alexa traffic graphs, it seems that they did experience a huge traffic boost but it was not a sustained one; the traffic is back to the pre-free-model levels.

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There are reports that HotorNot was acquired for $20M but I hesitate to believe these figures.

Some of the available stats about the site are as follows: Annual Revenue(est.) $5M; profit (est.) $2M; the current visitor count has stabilized to around 5M visitors/month. They also have an established brand and a significant presence on Facebook.

Given these numbers, where would one peg the valuation of HotorNot?

As a comparison, Face book has about 100M monthly visitors (theoretically valued at $15B) and Plaxo has about 2M visitors/month, and was looking for a valuation in the range of $200M.

Another variable that goes in here is that HotorNot is a risqué dating site, and traffic on similar sites does not monetize well.

Even after taking this in to account, I find it hard to believe that HotorNot would receive a valuation of $20M, I think there are some multiples missing here.

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If I were to throw out some numbers, I think the total package that HotorNot sold for, might be about $40M, may be $50M (but definitely not $100M).

Well, we will know in a couple of days.

You can add your estimate of the valuation in the poll (current poll is on the sidebar, see here for the results of past polls)


2 Responses to “Hot or Not Valuation - $20M is way too low and is very likely wrong”

  1. By James Engles on Feb 12, 2022 | Reply

    $20M cash buyout is different then x% buyout at some high valuation which may or may not survive finicky market; so I think $20M is about right.

  2. By RedBarron on Feb 12, 2022 | Reply

    They also made 20M over the 7-8 years they have been operating. So some people are calling it a $40M windfall. I think that is incorrect counting. An internet business that has thrown off $20M over the past x number of years is worth more than $20M.

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