Author Topic: Selling Portfolio (Read 8543 times)

phildate · « **on:** May 26, 2010, 05:31 »

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)

Microbius · « **Reply #1 on:** May 26, 2010, 06:17 »

Hi Phil,
That is really tricky, great portfolio by the way. This has been asked before and the answer I gave then was that you would probably achieve a price equal to 5 years worth of income assuming a drop in value of 50% per year. So if the portfolio brings in $50,000 per year you can probably get 50000+25000+12500+6250+3125= $96 875.
Not to say that it is only worth that much, ideally you should be able to get a lot more-- but I think with the uncertainty that is what the market will give you.
I hope I am wrong!

Perry · « **Reply #2 on:** May 26, 2010, 07:15 »

Quote from: Microbius on May 26, 2010, 06:17

Hi Phil,
That is really tricky, great portfolio by the way. This has been asked before and the answer I gave then was that you would probably achieve a price equal to 5 years worth of income assuming a drop in value of 50% per year. So if the portfolio brings in $50,000 per year you can probably get 50000+25000+12500+6250+3125= $96 875.
Not to say that it is only worth that much, ideally you should be able to get a lot more-- but I think with the uncertainty that is what the market will give you.
I hope I am wrong!

Don't forget that the buyer also needs to make a profit... If the estimated earnings in five years is $96 875, the buyer could pay perhaps only $65 000 to make it worth to take the risk. Personally I think the portfolio is much more worth than $96 875.

There is not an easy answer to the original question, at least the buyer needs to see statistics on how the portfolio is performing money-wise.

Perry · « **Reply #3 on:** May 26, 2010, 07:19 »

Quote from: phildate on May 26, 2010, 05:31

Due to changes in personal circumstances, my partner (business) and I are thinking of selling our stock portfolio of almost 10,000 images.

I would go to the bank and try to get a loan instead. The amount of loan could be two or three times your yearly microstock earnings and you should be able to pay it back in five years or so.

The problem with selling your portfolio is that the buyer needs to make a profit, that's money YOU LOSE. Of course even banks need to get a profit, but it's much less than what a risk investor needs to get.

michealo · « **Reply #4 on:** May 26, 2010, 07:45 »

I think that you will realize more of the value if you keep it under your control.

I am not sure I agree with "5 years worth of income assuming a drop in value of 50% per year" I know Lee Torrens is barely uploading and his microstock income has been maintained.

You could approach Yuri or Lookstat or someone to manage your portfolio on your behalf.

I am curious to know what kind of valuation you have on your portfolio?

Quote from: phildate on May 26, 2010, 05:31

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)

ichiro17 · « **Reply #5 on:** May 26, 2010, 08:03 »

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

Perry · « **Reply #6 on:** May 26, 2010, 08:17 »

Quote from: ichiro17 on May 26, 2010, 08:03

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

I personally would never invest in such a hazardous business as stock photography just to get 15% in profits after many years, I would be much better off investing in something else.

sharply_done · « **Reply #7 on:** May 26, 2010, 09:22 »

Your best bet might be to approach a few of the big agencies with the idea of them buying the collection and treating/promoting it as their "in-house" library. Although it definitely goes against the grain at iStock, I could see SS, DT and particulary FT being interested.

Good luck!

lisafx · « **Reply #8 on:** May 26, 2010, 10:28 »

Phil, I am sorry to hear you are in a situation that requires selling your portfolio. You are one of the pioneers and top sellers in this business.

I have no idea about selling your portfolio, but I certainly wish you the best of luck in whatever you pursue after this

phildate · « **Reply #9 on:** May 26, 2010, 10:42 »

Thanks for all the replies and helpful insights. We are only thinking of selling the portfolio as I might be moving countries and it will be difficult to maintain the partnership - I'm certainly not destitute - it's just one possible solution that's all.

Putting a value of year's of hard work and future earnings is definitely going to be a difficult exercise.

lisafx · « **Reply #10 on:** May 26, 2010, 10:56 »

Good to hear it is not some personal disaster

I hope you will post back when you have figured this out. It may come in handy for a lot of us down the road...

Microbius · « **Reply #11 on:** May 26, 2010, 11:02 »

Quote from: ichiro17 on May 26, 2010, 08:03

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

I want to make it clear that I don’t think the return from the portfolio will actually drop by that much per year; just that I think that is what the market will pay you for the portfolio. It would be great if you could let us know how negotiations go and what sort of price you get!

Or how about some of the people who have asked the same question previously let us know the sorts of offers they were made?

ETA. What about just freezing the portfolio and continuing to just split the income on the existing photos? You can always set up a new individual account on the sites seperate from the partnership. In my opinion this bound to yield more for you then the sale of the portfolio.

gostwyck · « **Reply #12 on:** May 26, 2010, 11:38 »

Quote from: sharply_done on May 26, 2010, 09:22

Your best bet might be to approach a few of the big agencies with the idea of them buying the collection and treating/promoting it as their "in-house" library. Although it definitely goes against the grain at iStock, I could see SS, DT and particulary FT being interested.

I'd think that might be a good option too. Recent history is of course littered with examples of agencies who have bought collections and who have subsequently been proved to have lost bucket loads of cash in the process. For example it seems bizarre now that Jupiter paid $20M for Banana Stock's 15K images back in 2006 and now those images are loitering in the bargain basement of PC/TS. I think they'd struggle to offload them now for one hundredth what they paid for them.

With that in mind only those who fully understand the microstock model should even contemplate placing a value on a portfolio. Only a fellow long-standing microstocker or a microstock agency could understand the variables that will affect the likely income from a given portfolio __ and nobody better than Phil himself regarding his own port.

I would regard buying a microstock portfolio as a risky investment in a young and changing market. Personally I'd want to be reasonably confident of being in profit within a couple of years simply because so many things could change within that timescale. Basically it's a significant risk so any buyer is going to want the potential of decent rewards if it works out. From a buyer's perspective I reckon a portfolio's earnings over the last two years would be a reasonable starting point for negotiations to begin. I don't think I'd sell my own portfolio for two years earnings but then I don't need the money and I'm happy to take the risk on it's future earnings myself.

PaulieWalnuts · « **Reply #13 on:** May 26, 2010, 12:23 »

Quote from: ichiro17 on May 26, 2010, 08:03

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

Stable? Microstock?

It's a very nice portfolio. Pretty difficult to put a value on though. A traditional business may get a buyer who's willing to value it at a 3-5 year ROI. With microstock there are too many factors that can change even over a year so I would think any potential buyer might be more reserved with a value based on 2 years of earnings or less. But I dunno.

And do agencies let you take over someone's account or would you need to re-upload everything from scratch? If from scratch, then prior sales history isn't a good measure of future potential.

Freedom · « **Reply #14 on:** May 26, 2010, 13:19 »

My suggestion is to incorporate a company and distribute the shares between you, your partner and maybe others. Then the shareholders can appoint a director/manager who will be paid according to an agreed rate and manage the port for the shareholders and distribute the dividends at an agreed time.

The shareholders can always replace the director/manager later.

louoates · « **Reply #15 on:** May 26, 2010, 13:45 »

I think it would be a terrific idea for a site to acquire images from those who wish to sell their images outright...or from the estate of those who have died. Mainly because the site would know exactly the "present value" of those images over the next few years and they could easily construct a payment schedule with X amount down and Y per month for Z months. What I'm really saying is that they could get the images for a very low investment in up-front money or time. I see this as a potential major profit center for them.

Uncle Pete · « **Reply #16 on:** May 26, 2010, 21:18 »

Quote from: PaulieWalnuts on May 26, 2010, 12:23

Quote from: ichiro17 on May 26, 2010, 08:03
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

Stable? Microstock?

It's a very nice portfolio. Pretty difficult to put a value on though. A traditional business may get a buyer who's willing to value it at a 3-5 year ROI. With microstock there are too many factors that can change even over a year so I would think any potential buyer might be more reserved with a value based on 2 years of earnings or less. But I dunno.

And do agencies let you take over someone's account or would you need to re-upload everything from scratch? If from scratch, then prior sales history isn't a good measure of future potential.

Just like the seller wants the best deal, don't forget the buyer isn't going to just throw down large bundles of cash betting on the future.

Most small businesses sell for a price, in the range of 2-5 times earnings before interest and tax expenses are deducted.

This is based on current earnings and potential future earnings. The word current doesn't include 2005-2008 for example. Although history is interesting, the buyer will want a complete looks at the financial records for the recent year of income and expenses. You don't open the books until after they make an acceptable offer, then the negotiations begin.

Looking at the same thing that Paulie pointed out, two times the annual earnings would allow the buyer to recover their investment in 4-5 years.

cascoly · « **Reply #17 on:** May 27, 2010, 13:33 »

Quote from: louoates on May 26, 2010, 13:45

I think it would be a terrific idea for a site to acquire images from those who wish to sell their images outright...or from the estate of those who have died. Mainly because the site would know exactly the "present value" of those images over the next few years and they could easily construct a payment schedule with X amount down and Y per month for Z months. What I'm really saying is that they could get the images for a very low investment in up-front money or time. I see this as a potential major profit center for them.

that's exactly the model agencies want to avoid -- they'd be paying best guess projected price for all images -- there's liitle to gain - not all images will meet expected returns, and many will only show a small % profit. why tie up all that cash when they can leverage their investment 100-fold by selling other people's images on consignment? it's the photographer who takes the risks now -- spending to create a portfolio with hope that there will be an adequate return.

s

louoates · « **Reply #18 on:** May 27, 2010, 13:48 »

I'm speaking of getting the images for very little money. Like cheap. Really cheap. My guess is that there are plenty of images that can be purchased outright for, say, one or two months projected earnings. As an example, if I had to sell rights to images in order to liquidate an estate for heirs, I'd take whatever I could get for a fast sale. Add to that those who just want to get out of the business of micro at any price. I could see a formula for a given portfolio that could yield profits in a few months.

borg · « **Reply #19 on:** May 27, 2010, 14:11 »

You can have approach similar like in business or stock market...
Average P/E (price/earnings) is 15 for stock market in global, this means that each company is worth 15 of their average annual earnings...

If we calculate 50% drop in earnings every year (maybe this is too much but customer wants a premium on his offer) that is:
50+25+12,5+6,25+3,125+1,56+0,78+0,39+,019+0,09...= cca $100K

gostwyck · « **Reply #20 on:** May 27, 2010, 14:48 »

Quote from: borg on May 27, 2010, 14:11

If we calculate 50% drop in earnings every year (maybe this is too much but customer wants a premium on his offer) that is:
50+25+12,5+6,25+3,125+1,56+0,78+0,39+,019+0,09...= cca $100K

That's an extraordinarily complex way of basically saying '2x annual earnings'.

borg · « **Reply #21 on:** May 27, 2010, 15:30 »

Quote from: gostwyck on May 27, 2010, 14:48

That's an extraordinarily complex way of basically saying '2x annual earnings'.

Hehehehe! Isn't complex too much..

I just want to explain how to calculate " The value of business" ...

Generally speaking, stock prices are spinning (in the history ) of about 15 average annual earnings ...

gostwyck · « **Reply #22 on:** May 27, 2010, 15:36 »

^^^ Stock images have little or nothing in common with the financial 'stock market'. You might just as well try to compare a portfolio's value with that of sheep, pigs and cattle in another 'stock market'. If pork futures are rising in price it doesn't mean the portfolio's value will be increasing too.

Microbius · « **Reply #23 on:** May 27, 2010, 16:35 »

Looks like most people who have come up with a price have come up with a figure roughly equal to 2x annual earnings.

michaeldb · « **Reply #24 on:** May 27, 2010, 19:42 »

Quote from: cascoly on May 27, 2010, 13:33

Quote from: louoates on May 26, 2010, 13:45
I think it would be a terrific idea for a site to acquire images from those who wish to sell their images outright...

that's exactly the model agencies want to avoid -- they'd be paying best guess projected price for all images -- there's liitle to gain - not all images will meet expected returns, and many will only show a small % profit. why tie up all that cash when they can leverage their investment 100-fold by selling other people's images on consignment? it's the photographer who takes the risks now -- spending to create a portfolio with hope that there will be an adequate return.

If an agency such as DT or SS were to acquire stock images to sell, the agency would be in a position of competing with its clients (i.e. us). While some businesses do compete with their clients, it is often a bad idea. I wonder sometimes if Adobe got out of the stock image selling business partly for that reason.