discuss Is a domain portfolio an asset?

[garptrader]

Quite often domain investors who have been in domaining for any considerable period of time have accumulated hundreds or in some cases thousands of domains. A portfolio of stocks can be valued based on the current trading price of each stock. Domains are not as easily valued.

Retailers will often value their inventories at cost for financial reporting purposes. They may have acquired an article of clothing for $10 which retails for $25 but it appears on the books at $10 in the year-end balance sheet. Electronics retailers have to be particularly careful with inventory because technology can cause older SKUs to lose their value even below the original cost. In such cases, a lower of cost or market valuation may be used.

A retailer will generally only order items it believes it can sell at a price above cost. Likewise, a domain investor will generally only acquire domains at a price below what they believe the domain can be sold.

So if a domain investor only acquires domains they believe can be sold at a price perhaps well above cost, does cost have any baseline meaning for domain portfolio valuation purposes? The challenge lies in renewals which makes domains somewhat like options which expire "out of the money.\" if not sold prior to expiration. Of course a domain can be renewed but that requires additional resources again and again and again etc if buyers do not show up. Again, most domain portfolios have very low annual turnover and thus the majority of the portfolio needs to be renewed - hopefully with funds from sales.

Of course if a ten-domain .COM portfolio regularly receives $XXXX offers on each of its domains, the $100 in renewals is not an issue. On the other hand, registering 100 20-character domains with random characters and numbers is not likely to generate anything other than renewals.

So how does one determine if a portfolio is an asset or merely an expense?

 

[platey]

I suppose if one adheres to the statement, "a domain is worth what someone is willing to pay for it" then at a domain level you could value each domain in a portfolio as....

DV=(PB x PS) - AP- (ARxYS) + PRS - MC
DV=domain valuation
PB=Price a buyer (ideally an end user with a strong need for the domain) is willing to pay to acquire it
PS=Probability of that domain selling given that a list price or price quote well above a buyer's willingness to pay for it may result in the domain not selling to even the ideal buyer (i.e. seller wants $50k but buyer is only willing to pay $500)
AP=acquisition price
AR=annual renewal unitl the domain is sold or dropped
YS=Years a domain must be renewed until it sells
PRS=parking revenue until domain sells
MC=Marketing costs incurred whether they be a marketplace commission or paying a broker to do outbound marketing or an estimate of the value of one's time spent on outbound marketing efforts (while not cash per se time does have a value and oftentimes time spent on outbound marketing might be better spent on more productive activities)

Note I have not considered the time value of money as a sale ten years from now is worth less than a sale today though the ideal sales price is normally going to be a passive sale one waits years for rather than an active outbound effort where aggressive pricing yields quick cash flow.

So if a domain never sells the domain investor loses not only the initial investment but also all renewals until the domain is dropped. This is the danger of the newbie handreg - dozens or maybe hundreds of cheap domains of dubious value end up getting renewed and costing more than a true-premium domain which could be acquired at Namejet and which would have a higher likelihood of finding an eventual buyer.

The main point that needs to be emphasized is that one cannot arrive at a portfolio value by taking the list sales price for each domain and adding up the numbers. Without a buyer, each domain has a negative value because renewals will have to be paid to maintain the portfolio. Portfolio turn is primarily a function of domain quality and pricing but is key to overcoming the hurdle of renewal costs.

someone will create a domain name stockmarket where domain name portfolios are {stocks} that have shares that can be purchased so that instead of taking a chance in buying domains that you think you can sell etc you would have the opportunity to buy shares in the best portfolios in the world which the owners would use the money invested in their portfolios to buy even more very valuable domain names and if a sale is made from that portfolio etc it would produce a dividend to the shareholders in that portfolio thus allowing people to profit from the domain name industry without the need to own a single domain name but by investing in portfolios that own the most highly sought after domain names of which the shareholder investing in that portfolio has to ownership rights to any of the individual domain names in that portfolio but has a vested interest in the portfolio that owns the domain names thus creating a domain name stockmarket containing a collection of portfolios containing domain names

the best domain name portfolios would be invested in the most?

just a thought

 

[platey]

Big portfolio holders like Mike Mann, Frank Schilling, HugeDomains, and BuyDomains sell a lot of domains each day. Mike Mann often reports 20+ sales per day on Twitter, and he has the smallest and lowest-valued portfolio of the ones I listed.


As someone with a diversified portfolio, I can say with 100% confidence that you've experienced this because the naming conventions and trends for startups and businesses have changed, which changed their buying behavior and desires. Very few companies are interested in EMD's (Exact Match Domains) anymore.


Diversify and adapt:

You have to follow the trends, and that's the biggest risk in domaining: investing too much in a trend and then it changing. A good example is the (word).ly and (word)ly.com trend that was really popular for a couple years when Bitly first became popular. Smart investors made a lot of money on that wave. That trend has fizzled down considerably, so if you're left holding too many of those types of domains, it's time to sell them at any price and find the next naming convention that companies want to use.

My sales have been more frequent and larger this year than years past. The most popular buying trend that I'm seeing is one-word domains on a sensible extension. There may be even hotter trends that aren't in my portfolio. The key is finding them early and investing before the surge of demand hits.

Here's how to determine the value of your portfolio:

Create a spreadsheet with every domain name in your portfolio, and then find out the highest offer you've ever received on each domain name.

The spreadsheet should have these two columns: Domain Name | Highest Offer

Once you have that data in the spreadsheet, sum up the Highest Offer column. That sum is roughly the liquid value of your portfolio. If it does not far exceed your cost (purchase prices and renewals) of the portfolio, then something is very wrong in your business strategy.

* When you first start out, you won't be able to use this method because it depends on time and quantity.

• Time: You'll need to have your portfolio for at least a year or two, ideally 3-4 years.
• Quantity: Anywhere from 50-150 domains will be enough, but the true value of this method will shine when you have 500+ domains.

Even after only a year with as few as 50 domain names, it will begin to paint a picture of where your portfolio is headed in terms of value.

great advice for anyone starting out in domain name investing

 

[frank-germany]

a domain is worth what someone is willing to pay for it

that is a liitle incorrect
should be:

a domain is worth what someone is willing to pay for it
at the time when you are willing to sell it for that price

 

[frank-germany]

Create a spreadsheet with every domain name in your portfolio, and then find out the highest offer you've ever received on each domain name.

The spreadsheet should have these two columns: Domain Name | Highest Offer

Once you have that data in the spreadsheet, sum up the Highest Offer column. That sum is roughly the liquid value of your portfolio. If it does not far exceed your cost (purchase prices and renewals) of the portfolio, then something is very wrong in your business strategy.

I can't agree

it doesn't matter how many offers you recieved in the past

1) they are no longer valid
2) they may be only lowballers

you may very well know the value of a certain domain
but the buyer has not yet shown

sometimes it needs 10 years or more
for the prospect to recognise
that he needs a domain
that you happen to own

 

[platey]

that is a liitle incorrect
should be:

a domain is worth what someone is willing to pay for it
at the time when you are willing to sell it for that price

very well put

one of the best phrases i've heard in stocks and shares etc is - shares dont care - and its so true because it isnt there problem someone bought them etc

and the phrase could be adapted and relevant to domain names etc

domains dont care - they dont need to be valuable - the person buying them wants them to be - but that isnt the domain;s problem

 

[Joseph Green]

I can't agree

it doesn't matter how many offers you recieved in the past

1) they are no longer valid
2) they may be only lowballers

you may very well know the value of a certain domain
but the buyer has not yet shown

sometimes it needs 10 years or more
for the prospect to recognise
that he needs a domain
that you happen to own

None of that is relevant to the method that I outlined.

This method is the closest thing you'll get (with ease) to a real valuation of your domain portfolio that can be realized in a short period of time if you ever need to liquidate. Not all of the buyers will still be interested but many will at some price, even if it's not quite what they offered originally. The averages will balance out most of it.

If you have enough data (most investors won't), you can limit the data to only offers that have occurred in the last 3-5 years. If you analyze the annual change in this data over a long period of time, you can see how the interest in and value of your domains is increasing or decreasing over time.

 

[platey]

I can't agree

it doesn't matter how many offers you recieved in the past

1) they are no longer valid
2) they may be only lowballers

you may very well know the value of a certain domain
but the buyer has not yet shown

sometimes it needs 10 years or more
for the prospect to recognise
that he needs a domain
that you happen to own

very true some of the big money domains have been bought cheap and sat on till the right buyer shows up

time is money but time doesn't need money

 

[frank-germany]

None of that is relevant to the method that I outlined.

This method is the closest thing you'll ever get to a real valuation of your domain portfolio that can be realized in a short period of time if you ever need to liquidate. Not all of the buyers will still be interested, but many will at some price, even if it's not quite what they offered originally. The averages will balance out most of it.

If you have enough data (most investors won't), you can limit the data to only offers that have occurred in the last 3-5 years. If you analyze the annual change in this data over a long period of time, you can see how the interest in and value of your domains is increasing or decreasing over time.

maybe it depends on the domains you own

mostly I sell domains that had no traffic and no inquiries for 5 or 7 years
and then they were sold

 

[Joseph Green]

maybe it depends on the domains you own

mostly I sell domains that had no traffic and no inquiries for 5 or 7 years
and then they were sold

Most end-user domain sales are as you described, and that's why the method requires a lot of domains (quantity) and time before it becomes useful.

• When you have 1 decent domain, you may not receive an offer for 5-7 years on any of your domains.
• When you have 1,000 decent domains, you should receive multiple offers per month on some of your domains.

It won't work for every domain portfolio, but it should work once you hit the minimums that I outlined. That's been my experience.

 

[platey]

Most end-user domain sales are as you described, and that's why the method requires a lot of domains (quantity) and time before it becomes useful.

• When you have 1 decent domain, you may not receive an offer for 5-7 years on any of your domains.
• When you have 1,000 decent domains, you should receive multiple offers per month on some of your domains.

It won't work for every domain portfolio, but it should work once you hit the minimums that I outlined. That's been my experience.

most people know what works for them i suppose but the problem with domains is that those that invest in them are so far ahead of the game eg flying cars etc we know that eventually some car manufacturer is going to mass produce flying cars etc but yjey are not mainstream yet but the good domain names already exist so in this example its a case of waiting for the market to catch up as in this particular example i reckon it will be 10 years? before flying cars are popular? which would mean at least 10? renewals but the returns would be quite substantial its just a matter of time and yet others prefer to buy and flip quickly

horses for courses

 

[frank-germany]

private space flights

privatespacetickets.com
privatespaceticket.com

wait 10 years?

 

[Joseph Green]

most people know what works for them i suppose but the problem with domains is that those that invest in them are so far ahead of the game eg flying cars

An easy solution to that problem is to only buy the very best domain name for flying cars that you can, and don't buy any others. Then, you'll only have one domain name to renew for 10 years and the expense will be manageable.

Some investors run into trouble when they buy 100+ domains for flying cars. That gets expensive with 10 years of renewals. Also, a lot can change in 10 years: a new gTLD for .fly could become popular by then, and the flying car companies might want to buy we.fly, you.fly, lets.fly, etc. Those 100+ domains are a risky investment.

When I spoke about trends before, I was referring to naming trends like -ly.com, not futuristic technologies.

 

[adriano68]

With valuable domain names it could be an asset otherwise it's a liability.