Analyzing Websites with Seasonal Revenue Fluctuations
Performing proper due diligence on a website is probably the most important step in the website purchase process. Revenue trends are one of the factors you must analyze.
However, some website businesses are seasonal and do not have steady month-to-month revenue trends. Therefore, comparing a specific month’s revenues to the previous month’s revenues may be misleading. In this case, each month’s revenues need to be compared with the same month’s revenues in the previous year.
For example, online gaming websites tend to have higher revenues during the colder winter and fall seasons because more people are indoors. People seek entertainment and it’s more convenient to play games online than participate in outdoor activities. During the warmer spring and summer months, more people are outdoors, fewer people play games online, and revenues drop.
Another example is websites selling seasonal products such as air conditioners. Revenues tend to be higher during the summer months when the weather is warmer and people need air conditioners. Revenues are lower during the colder months when these products are not needed.
In seasonal website businesses, as a buyer, you shouldn’t compare month-to-month revenue trends as they fluctuate during the year. Instead you need to compare, say, June revenues of this year with June revenues of the previous year.
As such, with seasonal websites, you need at least 2 years of financials to perform proper due diligence.
So keep this in mind as you analyze websites. Check first to see if it’s a seasonal website business. Then, analyze the website revenues and profits appropriately.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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