Online marketplaces are everywhere! From Airbnb redefining homestays and accommodations to DoorDash changing meal delivery, the marketplace business model has transformed the digital economy.
For founders building these marketplace platforms and investors seeking the next big opportunity, understanding the valuations of marketplace businesses is critical.
There can be different ways to value a marketplace business such as revenue multiples, EBITDA multiples, discounted cash flow methodology, gross merchandise value (GMV), and more.
In this article we will dive deeper into marketplace valuation using multiples and look at how marketplace valuation multiples have changed over the last ten years.
What is a Marketplace?
Marketplace is a business that connects third-party buyers and sellers with one another using technology. The marketplace typically earns money as commissions, fees, or similar mechanisms.
For the purpose of this analysis, we have decided to select only true marketplaces. We define a true marketplace model based on the following criteria:
- Business activity: The company should be an intermediary that connects third parties (buyer and seller) in a single place using technology
- Business model: The company should earn its revenue in the form of ‘commissions or fees’ from users
- Low inventory: A true marketplace does not hold significant inventory or tangible assets (whereas online retailers do)
- Free-choice of users: Thebuyers are free to set their prices and sellers are free to accept or reject an offer on the marketplace
The best example of marketplaces are companies like eBay, Alibaba, or UpWork. Some companies that are commonly believed to be marketplace businesses but fail to meet out criteria. Eg: Uber, Lyft, Amazon, etc.
We use many marketplaces in our daily lives. For example:
Understanding Valuation Multiples
Valuation multiples are a key component of marketplace valuation. They involve multiplying a company’s revenue, GMV, or earnings by a specific factor to estimate its value. The multiple used depends on various factors such as industry, growth rate, and profit level.
For example, revenue multiples are commonly used to value marketplace companies, while EBITDA multiples are used to value companies with high profitability. Understanding valuation multiples is essential to determine the value of a marketplace company accurately.
Our Methodology
We have used a sample of 40 publicly traded marketplace companies from different sub-sectors such as e-commerce, travel, automotive, freelancing, food delivery, and others.
Marketplace company valuations: EV/Revenue
The EV/Revenue valuation of marketplaces has shown significant volatility over the past decade, with much higher multiples seen during 2020 and early 2021, followed by a sharp decline.
Marketplaces are valued at a median of 2.2x EV/Revenue in 2024, much below their long-term average of 5.7x EV/Revenue.
The COVID-19 pandemic played a critical role during 2020-21 period for publicly traded marketplace companies.
On one hand, this period caused major upheaval for marketplace companies especially in the travel sector when global lockdowns kicked in and all travel was halted.
But as lockdowns kicked in globally, consumers turned to platforms like Delivery Hero and other similar companies for their needs, making these marketplace companies integral to the global economy.
The surge in demand in some pockets of marketplace industry created heightened investor enthusiasm, pushing valuations of these companies to new highs.
This was coupled with lower interest rates that also pushes valuations higher. The interest rate is factored in the discounted cash flow valuation methodology as the discount rate to calculate the present value of future cash flows.
E-commerce rollups during 2020-2022 – How they intersect with marketplaces?
In 2020-22, we witnessed the “e-commerce rollup trend”, where rollups, acting similar to PE funds, acquired and consolidated smaller e-commerce brands, usually ones selling products on platforms like Amazon or Shopify.
E-commerce rollups are ‘not’ marketplaces themselves, but they operate in a way that intersects with marketplace dynamics. Rollups often leverage marketplace data and customer bases to identify acquisition opportunities and grow acquired brands.
These rollups attracted significant investor funding, betting on the potential for economies of scale and rapid growth. However, as market conditions normalized post-pandemic, many of these rollups struggled to achieve their promised results, leading to waning investor confidence.
Marketplace valuations: EV/EBITDA
Just like revenue multiples, valuations of marketplaces based on EV/EBITDA also surged significantly during 2020 and the maximum multiple was reached in early 2021, with EV/EBITDA multiple being as high as 53x.
In 2024, publicly traded marketplace companies are valued at 27.3x EV/EBITDA.
It’s important to note that these multiples may not directly apply to private marketplace companies, as they are often lower and depend on specific business fundamentals. If you are looking to sell your marketplace business, reach out to us for a better understanding of how your business could be valued.
EBITDA margin
Marketplace platforms are known to focus aggressively on revenue growth and customer acquisition strategies but lately we have seen the focus has shifted to operational discipline and profitability.
When a new marketplace is launched, it is commonly seen that it offers incentives and discounts to win over customers (eg: food delivery apps).
During 2020-2023 when a lot of new marketplaces came to market, these companies prioritized growth, leading to significant spending on customer acquisition, marketing, and logistics. While revenue grew, it came at the cost of margins. The COVID-pandemic could have also been a stress factor on the profitability margins of these businesses.
After the surge in pandemic-era demand was over, companies began to adjust their operations to sustainable levels rather than overextending resources. Many increased their take rates (commission or service fees) as users became accustomed to their services. Once again, think about how food delivery apps win over customers by offering discounts and then increase their service fees.
Factors Affecting the Valuation Multiple
Valuation multiples are affected by various factors such as industry, growth rate, profit level, and market sector. For example, companies in the technology sector tend to have higher valuation multiples due to their high growth rates and profitability. Similarly, companies with high profit levels tend to have higher valuation multiples due to their ability to generate cash flows.
Understanding the factors that affect valuation multiples is essential to determine the value of a marketplace company accurately.
Why you need a Technology M&A Advisor for your Marketplace Company
Keeping track of valuation multiples for marketplaces provides valuable insights into market trends and helps you time your exit strategy effectively. However, every company is unique, just as every founder’s journey is unique. Therefore, it’s crucial to seek guidance from experts in the M&A space, particularly M&A advisors who specialize in the technology sector and can understand your specific situation.
Technology M&A advisors possess deep knowledge of market dynamics, valuation methodologies, and the intricacies of the M&A process. While you focus on managing your business, advisors diligently ensure that every detail is addressed and advocate for the best possible deal on your behalf. Technology M&A advisors success is intertwined with yours, and their expertise can often significantly influence the final sale price.
About Aventis Advisors
Aventis Advisors is an M&A advisor focusing on facilitating transactions for technology and growth companies. We believe the world would be better off with fewer (but better quality) M&A deals done at the right moment for the company and its owners. Our goal is to provide honest, insight-driven advice, clearly laying out all the options for our clients – including the one to keep the status quo.
Get in touch with us to discuss how much your business could be worth and how to maximize the valuation.
