15 x earning is way to high, companies that are valued that high are much more deversified than a portfolio of microstock photos.

Maybe microstockgroup could branch out into portfolio auctions  

Quote from: qwerty on May 30, 2010, 02:10

15 x earning is way to high, companies that are valued that high are much more deversified than a portfolio of microstock photos.

Maybe microstockgroup could branch out into portfolio auctions  

basic facts: PE is the price to earnings ratio , so a PE of 15 means the price is 15x current earnings -- the higher the ratio the RISKIER the stock. [in the dot com bubble PEs of 50 or more were common] in the case of Getty it has NOTHING to do with the RPI - it would be an indication of getty's worth to investors, and has NO direct connection to the size of getty's portfolio

s

the higher the ratio the RISKIER the stock.

Not necessarily true, it can mean that investors value the company more than it's peers. Coca cola has generally traded at a higher PE than it's peers because it is seen as reliable ...

P/E is as mush a measure of sentiment as anything else

Also in the dot com bubble P/E were often infinite as they often had no earnings ...

In bubble dot.com ballon I saw P/E ratio bigger than 500 and more...
Today you have bunch of companies (worldwide) with P/E ratio above 50...

But 15x isn't too much, because calculation isn't only with last year earning, that is average estimated earnings for several years, provided that every year will be 50% lower than the previous year...

Maybe I miss understand you, but I don't agree with your calculation.

say I pay $15

for something that earns $1 i.e P/E = 15

1st year $1 then $0.50 the next year and so on Companies have a P/E ratio of around 15 because they generally increase earnings over time. (at least plan to)
 We're talking about something here where it is very unlikely to increase earnings. (without adding to the portfolio etc.)

that's why PE isnt a useful concept for non-stockmarket - it's a snapshot stat that helps people decide whether to invest or not.  the earnings is what the company gives out as dividends -- so the PE of 100 can be fine if it's a tech stock that's increasing in prce - you're not buying it for the underlying value.   the contrarian style of stock buying would look for low PE as a hdege - if the stock doesnt go up, at least you have a good dividend.

f

Yes, I know, it's been a year. Anyone know what happened?

Anyone have a change in their opinion of what a MS collection is worth? Maybe by the photo, even if there are some that have never sold and never will?

Or maybe based on annual sales for the total collection, the number of photos, isn't important, is it? If I have 200 pictures and make $100 a year and someone else has 2000 photos and makes, $100 a year, isn't the number of images irrelevant?

Agencies have dropped sales and dropped commissions since this thread was started. Would that indicate to anyone that the value isn't growing?

I'll stick with 2 times the annual earnings, same as any other business. Easy enough and still a risk for the buyer, easy way our for the owner. Sell means letting go and taking what one can get, walking away. You buy a shoe store you get the same thing. Shoes (inventory), the business and the customers.

Hi Microstockers,

Due to changes in personal circumstances, my partner (business) and I are thinking of selling our stock portfolio of almost 10,000 images. How do we begin to try to put a price on this given the fluctuations in sales and revenue and lack of clear understanding on what the future might bring.

Can anyone point us in the right direction. We believe we have a strong portfolio and it does generate a good income each month.

The portfolio is probably best seen here : http://shutterstock.com/g/eastwestimaging

Appreciate any bits of advice.

Phil (for EastWest Imaging)

Youre right its been a year and much has happend. With the exeptions of SS and DT, the entire Micro industry seems to wobble. I doubt very much there is anything in buying any port right now.

OK how about selling?

I think part of the reason for a revival was the high dollar quotes and future earnings optimists vs the reality that there's no guarantee and things are a risk for the buyer at best.

It might be that the sorting out period is much more serious now and we shouldn't keep seeing new agencies entering the market. I said that two years ago, that anyone getting in now, is too late. Some others have pointed out that 4-5 years ago was already too late.

Same for artists and sellers. It's not as easy as it was, plus reviews have changed, commissions have dropped, outlets have dropped, competition has increased, so that buying an old photo means the future sales are even more at risk based on duplication and newer versions of the same materials.

I wouldn't want to be buying anything, and for the potential seller, it might be a good time to cash out for what you can get, before the value drops even more.

You can't look at it with random specs like 50% drop per year.  Especially with evidence to the contrary with other portfolios.

Bottom line is that you have to treat this as if you were securitising it as you would with any other revenue stream.  You would essentially take a forecast, lets say you make 1000 this year, and lets assume that you lose 10% each year.  So your cash flows would be:

1000
900
810
736 + 2230 (this is (736 / 1.1) /0.30 assuming that the drop in revenue is 30 percent after 4 years

Then, you take each year and take the present value to today's date.  The rate you use will be the rate that the party wishes to earn on the investment they are making by buying your portfolio.  I wouldn't discount that by more than 15% personally, given a good portfolio can really produce stable returns for a decent period of time

so

1000/1.15
900/1.15^2
810/1.15^3
(736+2230)/1.15^4

This is really just basic finance and could be interpreted other ways and the numbers change based on your assumptions, but discounting at 50% is really shorting yourself badly and well, if you are going to get ripped off, let someone else do it, don't help them

All that said, you need to find a buyer and negotiate the terms

This is basically how a private equity would undertake a business like this. Certain types of investors have a set IRR at which they invest (others) money. They would discount the cashflows at a rate and see what they can pay you above their internal IRR target. Agreeing port life, decrease of performance, royalty in(de)creases in the future, etc. would be the key issues here, once you have found the buyer of course.

Once agreed the inputs for the model they�ll stick to what the financial model says. Sometimes they buy bargains, sometimes they make terrible mistakes....

Investing at 15% IRR is difficult, there aren�t many business giving that money, if it wasn�t that difficult everyone would have wonderful retirements, no? I think only one person in the world has been able to invest money at those rates in the long term and that is W. Buffet. Madoff tried, but he didn�t quite make it . Looking for a 15% IRR for this kind of business is way too high. Where we find risk others find something pretty stable. 15% IRR usually relates to business with development risk, that means you still have to make the thing start moving. For a business with already "steady" cashflows a 10% IRR would be more likely the target. 

Ok, I�ve done a very quick example of a port valuation. Please take into account I have tried to make it really simple, it is not perfect but gives an idea.

I would advise to copy it to your own spreadsheet and not to edit this one. This way more people can use it. If people start messing around with it, delete formulas, etc, it will be useless.

https://spreadsheets.google.com/spreadsheet/ccc?hl=en_US&hl=en_US&key=tnsligbHBOIcRGoE0b7Uhcg#gid=0

I have included the following inputs and made the following assumptions.

There is no cost to maintain the port in the sites.

No tax calculations involved.

No financed (leveraged ) buying.

Valuation for 5 years. After that all the port can produce is an upside for the buyer.

Royalty increase. you can use the one (+ or - ) you think is more likely to happen across the sites where you have your port.

Discount rate for NPV: this is an internal value of the buyer. It can be used a risk free rate or the rate at which a company on average puts its money or average cost of capital or other. NPV is a way of comparing investments and of knowing if the investment will add value to the company, positive value, or substract it, negative value.

Portfolio degradation: yearly decrease of performance of a port if we stop uploading.

First year revenue: doesn�t need explanation

Port value: use this cell to guess the value of your port that makes the IRR reach a certain level. If you think someone would be inteersted of buying your port with this assumptions and targeting a 10% IRR, put values in this cell untill you get the desired 10% IRR.

IRR and NPV: don�t touch this cells unless you want to increase or decrease the years of analysis. For a good description go wiki them

Interesting spreadsheet. I suppose portfolio degradation and royalty increases/decreases are unknown factors. Does that mean in the end it is a best guess?  

My theory for valuing my own portfolio was taking yearly revenue and multiplying it by the number of years you thought it would take to rebuild it. Not as statistically savvy, but it sounded fair to me.

Yep, its a guess or it is based on your historical data, or data you or the buyer have access to. The more data you have the easier you can convince someone future will behave like past , those would be key factors to negotiate. But hey, its only an example, nothing else.