What is sex.com worth? Let's use a valuation model used to value acquisitions (and exclude godwill, as that is purely debateable).
Lets estimate $50 million per year in cash flows (rev-costs+ depreciation= c.f., with no depreciation of the asset).
Now, many posters here have simply mutliplied the cash flow per year * some number of years that they guess the internet will last.
If we apply the going prinicple from GAAP, all companies are considered on-going entities and thus their lifespan is considered to be infinity. So, no need to debate how many years we think the internet will last, as valuation models used in finance for valuing equity assumes a "Terminal" value.
Now, we must assume some growth rate of cash flows. In other words, as the internet continues to grow and users continue to come online then cash flows should increase for the site. $50 million this year may become $51 million next year. Usually, we assume nominal GDP growth as the rate to assume over time (because this includes inflation). Inflation is important because of the old antage $1 today is worth more than $1 next year. Lets assume 5% (3% for real gdp + 2% for inflation).
Our model becomes: (50 million*(1+5%))/(Discount rate)
Here's the real question: if you had a chance to buy sex.com today with $x, or invest $x in some other business, what rate of return would you want on your money to buy sex.com? After all, you don't want to pay dollar for dollar of its worth because then you are just getting your money back. So, you can buy government bonds (on average) at 5% interest on that same money you would buy sex.com with, so let's say you want 20% return for your investment on sex.com. Or, this assumes that each year your investment earns you 20% interest (pretty high in these times).
The model is complete: (50 mil * (1+5%))/20% = $262.5 million.
So, if you bought sex.com for $262.5 million today, you should get a return on your money of 20% each year.
You can sub any numbers for: cash flows per year, growth rate of the internet, or the return on investment you expect. Personally, I would increase 20% to 40-50%. Thus making the domain worth only (50 mil *(1+5%))/40% = $131.5 million to me.
That is the value I calculated as if I was buyer about to make an offer to the sex.com owner. Now, some may argue that the value of the domain is worth all of the cash flows over infinity. Sure, but what is $50 million in 10 years worth today? In other words, would you just lend me $50 million with the promie that I'll give it back to you in 10 years? Simple answer, no. So, even for the current owner of sex.com, the estimated worht of his domain si not a simple multiplcation game of (money per year * years).
Final answer, using DCF model: $262.5 million, if I were going to make an offer and under the assumption that it makes $50 million a year in cash flows, and I want 20% return on my investment every year for eternity.
I am sure there are a ton of posters - including GeorgeK, who have used simple models like this, and this brings some practicality to the model.
Credit: Gordon Dividen Growth Model.
