An article on Advisor.ca gives a good, if not slightly flawed, overview of domain names as portfolio investments.
The article, geared toward high-end financial investors, discusses the value of domain names compared to other investments (e.g. stocks). It was originally published in Advisor’s Edge Report.
It bases most of its information on an interview with Alex Tajirian of DomainMart. Tajirian is a thought leader in domain analytics (although I sometimes question his research which tries to fit traditional market economics into a very early stage market). The article does a good job of comparing domain name investments to regular investments (e.g. moral hazard of asset owners).
In a nutshell, domain name raiders are now taking over ill-managed domain names and releasing their intrinsic value.
But why are domain names attractive? For two very basic financial reasons, according to Tajirian: P/E ratios and cash flows.
Tajirian has produced research showing that domain name earnings are cheap, with domain names severely undervalued. That’s because market efficiency and information levels are quite low.
Moreover, cash flows generated by domain name ad sponsorship can be improved upon tremendously. Cash flows are a function of the quality of monetization, itself a function of PPC rates, number of searches and quality of traffic. Ultimately, that’s what makes domain name portfolio investing an alternative investment, starting right now.
There’s a lot of debate about the correct multiple for a traffic generating domain. This article makes a good point – buyers are looking to boost revenue from domains they purchase. If a buyer with a direct Google Adsense for Domains contract buys a domain from someone at a 5x multiple, the buyer can turn that into a 3x multiple overnight simply because of his higher payout ratio. Other buyers might purchase a parked domain and turn it into a site, which might result in 10 times more revenue overnight.
The article ends with a false statement: “Of course, you read it here first.”
Sorry Pierre Saint-Laurent (the author). We didn’t hear about this from you first . We’ve been talking about this for years.
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