Estimating the value of hosting companies by counting computers

Is it possible to estimate the revenue of a hosting company based on its public presence — that is, is the number of websites it hosts directly proportional to its market value? By using the market capitalisation (or acquisition purchase price, where appropriate) as a valuation and examining the number of web-facing computers, a striking patterns emerges.

Valuation of a hosting company against the number of web-facing computers found in August 2013.
Blue = “pure” hosting company; Orange = significant other areas of business. The dashed line is based only on pure hosting companies.
†Go Daddy’s valuation is based on its 2011 buyout offer, adjusted for growth in web-facing computers and for inflation.

Amongst the hosting companies examined, there is a fairly strong correlation between the number of web-facing computers and the valuation of the hosting company: the more computers visible at a hosting company, the higher the valuation. Considering only pure hosting companies (without significant other business, marked in blue), the average value per web-facing computer is circa $43,000.

An average company value per web-facing computer on the order of tens of thousands of dollars may seem surprisingly high, but there is, of course, more to it than the cost of a single computer. The number of web-facing computers does not take into account the potentially large number of computers used behind the scenes, which may vary from hosting company to hosting company depending on business model — there are likely to be fewer hidden computers at a shared hosting provider than at a cloud hosting provider.

Even with the same number of web-facing computers, the valuation of a hosting company can vary due to the quality of the physical hardware, the network infrastructure, and also sales and support staff. Most important is the current and future revenue, and hence profit, that each web-facing computer can generate.

This average value per web-facing computer masks a great deal of variation between hosting companies:

Hosting company Value per web-facing
computer (USD)
DADA $15.3k
Peer 1 $30.0k
SoftLayer $49.7k
iomart $52.3k
United Internet $66.8k
Internap $67.3k
Rackspace $68.1k
Go Daddy* $177.2k

Value (USD) per web-facing computer. Companies marked with a * have significant other areas of business.

Comparing two competitors in the managed hosting market, Rackspace and Peer1, highlights a significant difference in the valuation based on web-facing computers. Each web-facing computer at Rackspace is valued at twice as much as one at Peer1; perhaps this reflects the value of Fanatical Support and the flexibility of Rackspace's OpenStack-based cloud.

Go Daddy's valuation of $4.1bn is based on a deal in 2011 (adjusted for both inflation and computer growth), which reportedly amounted to $2.25bn for 65% of the company. This valuation is greater than expected from the number of computers at Go Daddy, but this difference could be explained by its equally prominent role as the largest ICANN-accredited domain name registrar.

SoftLayer is in the process of being acquired by IBM, who say the acquisition will strengthen their leadership position in cloud computing and help speed business adoption of public and private cloud solutions. Financial terms were not disclosed, but the deal is speculated to be worth more than $2bn.

The correlation between computers and market value can be used not only to estimate the value of private companies which have never been sold before, but also to estimate the value of the hosting divisions within much larger companies, such as Amazon.

Amazon's market capital stands at around $131bn today, but the majority of its revenue comes from online retailing. A valuation based on computer counting would suggest that its hosting division, Amazon Web Services, could be worth approximately $7.8bn, around 6% of Amazon's entire market value. Based on its Q2 2013 earnings report, Amazon's AWS division (within the Other category) accounted for 5.7% of its total revenue between 1st April and 30th June 2013.

Netcraft has developed a technique for identifying the number of computers (rather than IP addresses) acting as web servers on the Internet, providing an independent view with a consistent methodology on the number of web-facing computers at each hosting location worldwide. For more information, see our Hosting Provider Server Count.