Apptopia

Valuing App Portfolios

We recently blogged about a $200,000 portfolio acquisition that we brokered between Carter Thomas, owner of Bluecloud Solutions, and an international app fund, AppBin. Shortly thereafter we received a comment that made us realize that while we know a heck of a lot about valuing app portfolios – we haven’t been doing a very good job of sharing that insight. Here is the comment:

“That’s great for Carter, but it sounds a little low. I believe he has approximately 60+ apps.I’ve heard of people selling their portfolios for millions, and they didn’t have anything close to 60 apps.I heard that Carter was averaging $15.000+/m Times that by 12 =$180,000. $20,000 shy of what he sold all of his apps for. Doesn’t sound like a great deal. Just a thought. Thanks.” – Glenn

Allow me to elaborate on app portfolio valuations:

Portfolio Size
While important, the number of apps in a portfolio tends to be less of a value driver than how much those apps are generating in revenue, how cross marketable they are, and the quality of their brand. A portfolio of 5 apps that are heavily cross promoted, actively used, and as a result, drive consistent revenue month after month, is likely to sell at a higher price point than a portfolio with scores of apps that fails to accomplish the same.

Remember, 1 app in the top 10 of a category in the App Store will drive more revenue than 10 apps in the top 100 – it’s a quality over quantity game.

In Carter’s case, we dealt with a really solid handful of apps, which generated consistent revenue, but with range of financial success from the top performing apps to the low performing. The large number of apps sweetened the deal, but was less of driver in the acquisition than the overall performance of the portfolio. (Keep in mind, the more apps there are, the more management they require, so there is a double-sided facet to it).

Revenues
In the vast majority of cases, revenue is the single-most impactful factor to a portfolio’s valuation and overall appeal to a buyer. Generally speaking, buyers these days are looking for approximately a 1-year payback on their app purchase, with a little bit more of a range when it comes to portfolios.

This might seem low to anyone who closely studies business acquisitions, where multiples can range anywhere from 3 to 5 years. But we’re talking about apples and oranges. The app market is new (barely 5 years old), highly volatile, and defined by a guaranteed decline over time regardless of an app’s success.

Carter’s revenues were actually steadily rising month after month, which made it very attractive – but even so, he couldn’t really expect a payback price far outside of that 1-year range because there was no way to maintain that traction without consistent maintenance and agile thinking. Why? Well…

Risk
This is something I’ve written about before, but it’s worth harping on. Past success in no way dictates future performance. Like I mentioned before, pretty much all apps trend downward over time and there are always a variety of unforeseen circumstances that cause them to do so. The App Store guidelines alone heavily impact the stability of the app market.

To give you an idea, just days before Carter’s deal closed, a new Apple guideline prohibiting any app that references the Gangnam Style brand, materially affected one of the apps in his portfolio. Disco Style Runner was once “Gangnam Style Runner,” the most lucrative app in the entire portfolio, and in an instant, it vanished. However Carter adapted the app and still made it a worthy investment, but this example is just the tip of the iceberg.

The point is that in all cases, the seller doesn’t just transfer their apps; they also transfer all of the risk. Getting a lump sum up front rather than accruing over time isn’t just better because of the time-value of money, it’s also better because it’s a guaranteed payout and you don’t have to worry about navigating the treacherous waters as the buyer now does.

Winning Situations
While revenue and the final sale price is obviously important, much like a business acquisition, there are many side and personal factors that ultimately dictate the outcome. Developers frequently want to pass their apps off to a buyer they feel will take proper care of them, and occasionally want to continue to play a role in some capacity. In other cases, their desires are exactly the opposite where they want to sell as soon as logistically possible. The list goes on and on.

Continuing to use Carter as an example – he wanted all of the above. He came to the decision to sell his apps and he wanted to do it very quickly; he wanted them off his hands ASAP so he could move onto his next venture.

He also wanted to sell to a buyer he thought would add to the lifespan of his work, and would allow him to stay involved in some respect. This deal closed quickly and comfortably because of the relationship that Carter built with the buyer throughout the process. The fit couldn’t have been more perfect for both parties – and the price was the result of what the portfolio was worth as well as how flexible the buyer was in structuring the deal for Carter and how quickly it could happen.

Apptopia was pleased to facilitate this deal and we look forward to working with AppBin and Bluecloud Solutions again in the future!

Have any more questions on app portfolios? Just ask us in the comments section!

 

This article has 9 comments

  1. In one of Carter’s old comments on his site, he actually mentioned making $3k a day: http://www.bluecloudsolutions.com/blog/gangnam-style-insights-chartboost-tips-2013-plans/comment-page-1/#comment-21540

    $3,000 a day = 90k a month = over 1 million a year

    And yet he sold his entire app empire for a little 2 months worth of revenue? Either you guys got an amazing deal or something doesnt add up right…

  2. Nicole,

    Thanks for commenting! But that’s kind of a small piece to the puzzle. Carter might have made $3,000 a day for a short period of time, but he wasn’t making that money consistently (especially for an entire year). Otherwise, there’s really no point in selling.

    You can’t take your highest revenue point and use that as the multiple for your figures. You should do your best to figure out exactly how much your app or portfolio will generate for the year. Again, this portfolio was still quite impressive…but not $1M. No doubt Carter’s next venture could easily be worth that though!

  3. Hmmm interesting … Thinking of sending app portfolio :)

  4. Go for it, Raj! We’d be happy to give you a valuation on it and help you sell!

  5. Gerry, can you email me for a valuation? Thanks!

  6. Hey Rob – what’s your email? Better yet, just send your app/info to valuation@apptopia.com and we’ll get it to you in 24 hours.

  7. Hey, I just emailed but it got bounced. Any other email I can try?

  8. [...] gives buyers understanding, which in turn provides them comfort, which leads to money being spent. Sellers pass off a lot of risk in an acquisition, so they need to do whatever they can to iron out the uncertainties [...]

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