Visit Craigslist Much? Well, Now it’ll be $5!
Henry Blodget seems to be getting a lot of flack over his valuation of Craiglist. Honestly, he engages in some logical conjecture, but it’s so assumption-laden as to be useless for too much. Let’s see what he says:
Let’s assume that, instead of charging for job ads in only 11 cities, Craigslist charged for all job ads (currently 2 million a month). Let’s assume that it also charged for another 5 million of the 30 million ads on the site each month. Let’s assume that Craigslist users were so horrified by the outrage of being charged even a de minimus listing fee that two thirds of these listers stormed off in a huff so that the 7 million of paid listings dropped to, say, 2.5 million a month. And let’s assume that Craigslist charged its standard $25 job listing fee for all of them.
See the pitfall there? Further handwaving is done for actual valuations, but do you really think that a site like Craigslist would still be, even similiar, to its original spirit and size if you changed it from a 99% free site to a pay site? I don’t. It changes the character of the community overall.
Well, Equity Private doesn’t either. Her thoughts (from a comment she left, after I “kind of” prodded her):
You also have forgotten what CL _IS_. It’s a community in the spirit of file sharing. It has a very anti-capitalist flair. (They hate me there, no one will even buy me a drink anymore). Just look at “missed connections” section if you like. That’s about as French Existentialist as one gets. Charging to read that section but making it free to write for would STILL piss off the mournful contributors enough to cause a mass exodus. (This is a pity, because subscription revenue for the section might actually be worth something). Strip that stuff away and you’ve just got online classifieds. That’s a bust of a business for anyone else who’s tried it.
This is an awesome example of why logical numbers an seemingly severe assmuptions are a slippery slope. EP also mentions Napster. Online community? Check. From free to paid? Check. Completely failed? Check. Now, the impetus for that change was different, but still, not an unrealistic comparable. What falls out of all this? Well, EP delivers the death blow:
[Your valuation] implies a perpetual growth rate in the business of around 14.625%. (And I haven’t accounted at all for the amount of reinvestment required to maintain that growth rate- but it’s really silly to bother, it’s just not sustainable- eventually it is going to fall to about the risk-free rate… 3.5% right now if we use the 10 year treasury).
14.625% implies the already-huge CL would double in 5 years and be three times as large in 10 years! Really? I’ll take the under. Excel is dangerous sometimes…
Oh, and I suppose this is a good a time as any to bring this to people’s attention. Fascinating!