E-Commerce multiples low

by a searcher from University of South Carolina - Darla Moore School of Business

Jan 25,2023

I have come across a few deals in the e-commerce space and it looks as though the mutiples are very low, in many instances###-###-#### 25X EBITDA. I suspect this mainly is due to the short life of these companies, as many of them were started over the last 2-4 years.  There there any other reasons why mutliples may be so low? Do e-commerce brands (selling on Amazon or Shopify) typically rise and fall quickly? Do they often have a few good years and then fizzle out?  What are the primary factors making these so low?  I'm not too familiar with this field, so thanks for any input.

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searcher from New York University - Leonard N. Stern School of Business

As someone who grew up in digital businesses and now runs a manufacturing based education company, I see a massive haircut in multiples for having a physical product. That said, I wonder what people are seeing in terms of multiples due to rising interest rates....tech companies are shedding bloat which could make the disparity even greater. What are other peoples' experiences?

01/25/2023 | like reply | 0 likes

professional from University of Idaho

I'd second what Thomas is saying. In order to get people to the door with a new eCommerce biz, it takes a lot of PPC, which can be expensive. Not to mention that, during those first years, you're also working to hone in and optimize those ads, the user experience, etc. Organic traffic, which is what SEO focuses on, produces much more sustainable traffic over the long run. The problem is a sound SEO strategy can still take 6-12 months before it starts moving the needle.

For new online businesses, we usually recommend starting with PPC because it's instant, and starting SEO at the same time for the long-term strategy. As the SEO starts to generate traffic, you can start pulling back on PPC spend.

In the case of any eCommerce business, you'd need pretty strong margins AND well-tuned ad campaigns to make that work over the long haul. In my opinion, any viable eCommerce business must have some sort of SEO strategy in the works.

Hope that helps!

01/25/2023 | like reply | 0 likes

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