Craig Newmark: Billionaire?
If you use Craigslist like me, you probably take a look around for the occasional free stuff listed locally, maybe a job listing, and check out missed connections for a laugh. Nothing earth-shattering.
So it came as a surprise to me this morning when AIM Group’s Classified Intelligence Report estimates that Craigslist will pull in over $100 million in revenues this year.
That’s remarkable. It’s obvious Craigslist is one of the major reasons newspapers are suffering (when was the last time you bought one to look through the classifieds? That used to be a daily occurrence for millions). But the image of Newmark is of a selfless techie who started Craigslist for the hell of it. I don’t dispute the notion he isn’t focused on profit, but that only serves to make that revenue figure even more amazing. Of all the postings and ads on Craigslist, only a smidgen are charged for – $25 to list a job, $10 and up for listing an apartment for rent if you’re a broker in some cities. As the AIM analysts state:
Craigslist is a stunning business success story, especially since it’s run more like a community service than a for-profit business. And despite tremendous negative publicity and legal battles, its revenue keeps increasing at a remarkable pace.
That begs the question then, just how much is Craig Newmark worth? Certainly hundreds of millions – perhaps even $1 billion.
Newmark is already well-off. In 2004, eBay reportedly paid him about $50 million for a 25% stake in Craigslist. Drop one-third of that to account for income taxes and figure the investment gains he made on that remaining $33.5 million from 2005 through 2007 were wiped out by the market crash last year. That still leaves $33-$34 million – decent money.
Yet the bulk of his worth is still tied up in Craigslist. How much is that worth?
The simplest way to figure a company’s value is to do a multiple of revenues. Three times sales is a reasonable guess, so then Craigslist is worth $300 million as a company and Newmark a percentage of that. But multiplying revenues like this is crude and it really is only an effective ballpark method for old-line companies with much slower growth, if any. Consider $300 million the absolute lowest value for Craigslist, but there is no way it ever would sell for so low.
A better measure of value of a company is if we can get an idea of profitability. Craigslist has just 30 employees. Assume each costs $200,000 a year (probably way high) that equals labor costs of $6 million. Craigslist is really just a posting-based service, so while it has server needs for its 20 billion monthly hits, it doesn’t have a need for high-powered computing like a search engine. So figure perhaps another $12 million in operating costs (and here I admit I may be off). That implies a margin of $80 million – way too high. Google after all, has a profit margin of 20% – but Craigslist doesn’t spend on R&D like Google, so let’s figure Craigslist makes a 50% margin. That means it could be turning a profit of $45 million this year, after taxes.
What does that tell us? The S&P 500 index has a price-to-earnings ration right now of 15, if Craigslist were to go public, we could reasonable expect it to trade in line with the S&P valuation. We can tweak that upward since Craigslist would be a growth stock, not as established as an S&P stock, so let’s apply a multiple of earnings of 18, slightly less than Google’s forward p/e. That means Craigslist is worth $810 million as a company. Newmark’s 75% is then worth $608 million. Add his net from the eBay buy-in in 2004 and Newmark is worth $642 million. Probably even more.
Why? Craigslist itself says it charges “below market rates” for the few ads it does charge for. That means revenues are artificially low, and they are still growing at a fast rate: 23% this year and a 63% annualized rate in the past five years. If the company were to go public, it would focus on maximizing revenue, meaning sales could easily be double what they will be this year (but profit margin wold fall on increased marketing, labor and regulatory costs) so a $1.35 billion market value for Craigslist would be possible off the bat based on forward expected revenues. If you want to get sloppy and start guessing at the investor enthusiasm that would surely follow a Craigslist IPO and drive up the stock price to Pets.com levels, it’s possible the company – and its founder – would be worth well more than even that.
Some caveats. Newmark probably doesn’t own 75% of Craigslist. We can assume for one his CEO Jim Buckmaster has some equity in the company, as perhaps some other key employees, so maybe Newmark owns 70% of the company – a small haircut on personal new worth. As far as calculating corporate worth, I’ve ignored Monster Worldwide, which would be a natural comparison but for its poor management – the company has been involved in a stock options backdating scandal and, more importantly, sales growth stinks – revenues were down 31% in the latest quarter and 10% for the past year. Craigslist is growing in the same market. Not a fair comparison.