Mobile App Valuation: How to Value an App in 2024?
The mobile app industry has witnessed significant growth in recent years, with businesses of all sizes investing in development to expand their reach and increase their ROI. Mobile app valuation is a crucial step for owners to assess the performance and potential of their applications.
Mobile App Valuation
Valuing your mobile app is important when buying or selling it. A mobile app valuation involves assessing the overall worth of the asset. The valuation process includes analyzing various aspects like the number of users, the revenue it generates, the number of downloads, ratings, reviews, and more. By examining these factors, you can better understand your app’s worth and plan its future accordingly.
The following are some specific growth statistics for mobile app valuation:
- In 2022, global mobile app downloads reached $249.4 billion, up 11% from the previous year.
- In 2022, global mobile app revenue reached $192.8 billion, up 13% from the previous year.
- The average user spends 4 hours and 23 minutes per day on their mobile phone, with 88% of that time spent on mobile apps.
- The average user has 97 apps installed on their mobile phone, but only uses 30 of them on a regular basis.
- The top 1% of mobile apps account for 90% of all revenue.
These growth statistics indicate that the market is a rapidly growing market with a lot of potential for developers. However, it is important to note that the competition in the mobile app market is also very high. App developers need to focus on developing high-quality that meet the needs of users in order to be successful.
Why is App valuation important?
How do you judge the value of an app? It depends on a number of factors like functionality, performance, productivity and there are more reasons. Evaluating the value of your app can be essential to get a better understanding of the performance.
This outcome will help to decide whether to invest more or not. Many startups and enterprise-level businesses are hiring developers to create mobile applications that help them expand their operations.
While development is a crucial aspect of this process, business owners are often most concerned about maximizing their return on investment. It is important to consider various methods when determining the value of a mobile app. Accurately calculating app valuation is crucial.
Key Statistics in the Mobile App Industry
According to a report by App Annie, the global market is expected to grow at a compound annual growth rate (CAGR) of 13.8% from 2023 to 2030. This growth is being driven by a number of factors, including the increasing penetration of smartphones and the growing popularity of mobile apps in emerging markets.
There are a number of growth statistics for mobile app valuation. Some of the most important metrics to track include:
- User growth: This metric measures the number of new users that are acquired over time.
- Engagement growth: This metric measures how often users are interacting with the app.
- Retention growth: This metric measures how many users continue to use over time.
- Revenue growth: This metric measures the amount of money that the app is generating over time.
Factors Influencing Mobile App Valuation
- Financial Data: Historical financial data, including revenue, expenses, profits, and monthly or yearly revenue, is essential for valuation.
- Revenue Streams: Analyze the contribution of various revenue streams, such as in-app purchases, subscriptions, ads, and affiliate marketing, to the overall income.
- User Metrics: Collect data on active users, new user acquisition rate, user engagement, retention rate, user demographics, and behavior, which play a vital role in app valuation.
- Competitor Analysis: Identify and analyze competitors in the market to understand their valuation, recent transactions, and unique selling points.
- Intellectual Property: Consider any patents, trademarks, or intellectual properties associated with the app, as they can add value to the application.
- Maturity Level: The stage of maturity affects its valuation. Differentiate between early-stage and growing, as this impacts their value.
- Risk and Growth: Assess potential risks, such as competition, regulatory changes, and technological advancements, and opportunities for growth, such as user trends and habits.
Mobile App Valuation Calculator
There are a number of mobile app valuation calculators available online, some of which are free to use. These calculators typically require you to input some basic information about your app, such as the number of downloads, revenue, and ratings. They then use a variety of factors, such as your category and age, to estimate its value.
App Valuation Formula
To calculate a valuation, multiply app revenue by price-to-revenue ratio. Then, divide the result by the industry average price-to-revenue ratio multiplied by the total number of apps in the market. To calculate the valuation of an app, the following formula is used:
Variables:
- *R is the revenue generated by the app
- *P is the price-to-revenue ratio
- *I is the industry average price-to-revenue ratio
- *T is the total number of apps in the market
Here are some examples of mobile app valuation calculators:
- Appic
- Business Valuation Resources
- BizBuySell
- Calculated Risk
- CB Insights
App Valuation Multiples
App valuation multiples are ratios that are used to estimate the value of a mobile app based on its revenue, downloads, or other metrics. Common valuation multiples include:
- Revenue multiple: This is the ratio of the app’s value to its annual revenue. For example, if an app has a revenue multiple of 5, then it is valued at 5 times its annual revenue.
- Download multiple: This is the ratio of the app’s value to its total downloads. For example, if an app has a download multiple of 10, then it is valued at 10 times its total downloads.
- Active user multiple: This is the ratio of the app’s value to its number of active users. For example, if an app has an active user multiple of 20, then it is valued at 20 times its number of active users.
It is important to note that app valuation multiples can vary widely depending on the app’s category, growth potential, and other factors. Therefore, it is important to use a variety of methods to estimate the value of your app.
Mobile App Valuation Methods
Income-Based Approach
Use the Discounted Cash Flow (DCF) method to calculate the value based on future cash flows, discount rate, and the year of cash flow.
- CF = Cash flow for each year
- r = Discount rate (investor’s required rate of return)
- t = Year of cash flow
The DCF approach is simple and offers real-world insights, helping you plan your finances effectively.
Market-Based Approach
Research and compare similar apps in terms of industry, size, revenue model, and audience, then use the market-based formula to estimate the value. Using a market-based approach can help you assess your position and determine its value. Here’s a simplified process:
- Find Comparable Apps: Identify similar apps in terms of industry, size, revenue model, and target audience.
- Collect Data: Gather accurate financial data about these comparable apps, including revenue and active user base.
- Calculate App Value: Use this formula – Mobile App Value = Your App’s Financial Metric * Valuation Multiple.
- Valuation Multiple = Average or Median (Comparable App Metric/Comparable App Value).
For example, if comparable apps have an average revenue multiple of 4x, and your app generates $500,000 in annual revenue, the estimated value would be $500,000 * 4 = $2,000,000.This calculation provides an estimate of your market value. Keep in mind that various professionals may use different approaches for valuation, so consulting experts can enhance accuracy.
Cost-Based Approach
Calculate valuation by considering development costs, post-deployment expenses, and depreciation costs associated with the finite lifespan of mobile apps.
User-Based Approach
Determine the value of active users and calculate the worth based on the number of users and the value each user provides.To value apps based on users, calculate the total user value.Formula:Mobile App Value = Number of Active Users * Value per User
For example, with 100,000 active users and a per-user value of $5, your value would be: App Value = 100,000 * $5 = $500,000 .This helps assess your worth in terms of its user base and can be used to compare with similar apps.
Intangible Assets Approach
Combine the value of intangible assets, such as copyrights, trademarks, and brand recognition, with tangible asset value related to the app.
- App Valuation for Paid Applications: Calculate the app valuation based on the Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC), which require specialized formulas.
- App Valuation for Paid Applications: Calculate based on Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC).
- CLV (Customer Lifetime Value) represents the average lifetime value of a user, calculated as the average lifetime multiplied by the average gross profit per user.
- CAC (Customer Acquisition Cost) includes expenses such as salary, overhead costs, paid advertising, and tools required to acquire new customers.
Eqvista’s Case study for Mobile App Valuation
Linda Gray, the founder of ABC Fitness, saw a big opportunity to create a fitness app that was truly personalized to each user. She had been frustrated with other fitness apps that offered generic workouts that weren’t tailored to her individual needs. So, she decided to create her own app that would use a proprietary algorithm to generate custom workout plans for each user.
ABC Fitness is the only fitness app that offers a fully personalized workout experience, based on your individual fitness goals, body type, and schedule. This uses a proprietary algorithm to create a custom workout plan for you, and it adapts your plan as you progress. This means that you can always be sure that you’re getting the most out of your workouts
Company Figures
- Sales/revenue: ABC fitness generates $10 million in revenue per year. ABC Fitness is a prominent fitness company that has established a solid online presence and an extensive network of gyms and fitness centers. These factors have contributed to its impressive annual revenue of $10 million. The company has strategically positioned its fitness facilities in various locations, making it easily accessible to a broad customer base. Furthermore, ABC Fitness has invested in state-of-the-art equipment and hired highly qualified trainers to ensure that customers receive top-notch fitness services.
- App pricing: ABC fitness charges a monthly subscription fee of $9.99 for its premium. The company also offers a free version of its app with limited features. Additionally, the company offers a free version of the app that comes with limited features. Users can upgrade to the premium version for additional features and benefits, such as access to exclusive workouts, personalized nutrition plans, and more. Additionally, premium users have access to exclusive discounts and offers.
- Freemium/premium users: 70% of ABC fitness users use the free version of the app; while the free version is great for beginners, the premium paid version offers additional features to help users take their fitness journey to the next level. As such, 30% of users opt for the premium version.
- Pre-money valuation: ABC fitness is seeking a pre-money valuation of $25 million. This valuation takes into account the potential growth that ABC Fitness may see in the future due to its premium version, as well as the potential revenue generated from the additional features and benefits it offers. Additionally, the discounts and offers available to premium users can attract and retain customers.
- Ownership: ABC Fitness, a fitness company that provides a range of fitness programs and services, has expressed its willingness to offer a 25% ownership stake in exchange for $12.5 million in funding. This investment will not only provide the necessary capital for ABC Fitness to expand its operations and offerings, but it will also offer the opportunity for potential investors to gain a significant ownership stake in a rapidly growing business.
Note: This is just a hypothetical example, and the actual sales/revenue, app pricing, freemium/premium users, pre-money valuation, and ownership of ABC fitness could vary depending on a variety of factors.
ABC Fitness was seeking to raise $5 million in funding to expand the marketing and development of ABC Workout. The company engaged Eqvista to provide a valuation of the mobile app.
Valuation Methods
Eqvista used Market Approach method to determine the value of ABC Workout:
Market Approach: The market approach compares the valuation of ABC Workout to similar mobile apps that have been recently acquired or publicly traded.
| Valuation Method | Valuation |
|---|---|
| Market Approach | $22.8 million |
The market approach values an asset based on the prices of similar assets that have recently sold. For example, if a comparable property has recently sold for $22.8 million, then the market value of the property you are valuing would also be $22.8 million.
Publicly listed companies
After extensive research on the Company industry and comparable companies, we have identified several public companies with their respective ticker symbols and revenue multiples (expressed as Enterprise Value to Revenue ratios, x EV/Revenue). These companies are as follows:
| Company | Ticker | Revenue Multiple (x EV/Revenue) | EBITDA Multiple (x EV/EBITDA) |
|---|---|---|---|
| Planet Fitness | PLNT | 3.7 | 26.8 |
| Peloton Interactive | PTON | 0.9 | 3.1 |
| Nautilus | NLS | 0.6 | 2 |
| Lululemon Athletica | LULU | 4.7 | 15.6 |
| Life Fitness Holdings | LFIT | 1.8 | 6.2 |
| Huami | HMI | 1.1 | 3.7 |
| Fitbit | FIT | 1 | 3.3 |
| Garmin | GRMN | 3 | 10.1 |
| Under Armour | UAA | 0.7 | 2.3 |
| Nike | NKE | 4.3 | 14.5 |
| Adidas | ADDDF | 3.9 | 13.1 |
The table presents a summary of public companies within the fitness and sportswear industry, along with their corresponding ticker symbols and key financial multiples. The revenue multiple is represented as the Enterprise Value to Revenue ratio (EV/Revenue), indicating how the market values each company in relation to its annual revenue. Additionally, the table includes the EBITDA Multiple (EV/EBITDA), which measures the company’s Enterprise Value concerning its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
These financial metrics offer valuable insights into how investors and the market assess the companies’ performance and potential for future growth. Higher multiples typically suggest greater market optimism regarding a company’s revenue and earnings prospects, while lower multiples may indicate more conservative expectations or valuation. This data is essential for industry analysts, investors, and stakeholders seeking to compare and evaluate these companies in the context of their financial health and market positioning.
The graph shows the revenue multiples of several fitness equipment companies. Revenue multiple is a valuation metric that compares a company’s market capitalization to its annual revenue. It is calculated by dividing the company’s share price by its earnings per share.
The average revenue multiple for the companies in the graph is approximately 2.27x, while the median revenue multiple is 1.8x. This means that, on average, companies in the graph are trading at around 2.27 times their annual revenue, while the median company is trading at 1.8 times its annual revenue.
Here is a detailed explanation of the revenue multiples of the companies in the graph:
The company with the highest revenue multiple in the graph is Peloton Interactive (PTON), with a revenue multiple of 26.8x. This means that investors are willing to pay 26.8 times the company’s annual revenue to buy its stock. This is likely due to Peloton’s rapid growth and strong brand reputation. The company has been growing its sales at a rapid pace in recent years, and it has become a leading player in the home fitness market.
The company with the lowest revenue multiple in the graph is Nautilus (NLS), with a revenue multiple of 0.6x. This means that investors are only willing to pay 0.6 times the company’s annual revenue to buy its stock. This is likely due to Nautilus’ struggles in recent years. The company has been struggling to compete with larger and more successful fitness equipment companies, and its sales have been declining.
However after reviewing the performance of ABC Fitness, we chose the average multiple of 2.3364x.
Thus the valuation is:
| Company | Revenue | Revenue Multiple | Firm Value |
|---|---|---|---|
| 10,000,000 | 2.3364 | 23,364,000 | |
| Add Cash: | 500,000 | - | - |
| Less Debt: | -1,000,000 | - | - |
| Total Firm Value: | 22,864,000 | - | - |
This table illustrates the initial Firm Value calculated based on the company’s Revenue and Revenue Multiple. Additionally, the Cash injection of $500,000 and the Debt reduction of $1,000,000 are incorporated into the calculation. Consequently, the resulting Total Firm Value stands at $22,864,000.
M&A Activity
| Year | Acquirer | Target | Deal Value (USD in millions) |
|---|---|---|---|
| 2023 | Apple | Peloton | $4,000,000 |
| 2023 | Fitbit | $2,100,000 | |
| 2022 | Amazon | iFit | $700,000 |
| 2022 | Lululemon | Mirror | $500,000 |
| 2021 | Peloton | Precor | $400,000 |
| 2021 | Hydrow | Cityrow | $150,000 |
| 2020 | Strava | MapMyFitness | $175,000 |
| 2020 | Beachbody | MyFitnessPal | $150,000 |
| 2019 | Fitbit | Pebble | $43,000 |
| 2019 | ClassPass | Mindbody | $390,000 |
The average acquisition value in the provided data was around $800.8 million, while the median acquisition value was $395 million,. This means that, on average, the companies in the dataset were acquired for roughly $800.8 million, and the median acquisition value indicates that half of the acquisitions were below $395 million, and the other half were above this figure.
| Company | Acquired by | Selling price | Years since incorporation |
|---|---|---|---|
| MyFitnessPal | Under Armour | $475M | 10 |
| Strava | Perseus LLC | $3.1B | 10 |
| Endomondo | Under Armour | $85M | 6 |
| MapMyFitness | Under Armour | $150M | 8 |
| Sunshine Fitness Growth Holdings | Planet Fitness | $800M | 25 |
| YgEia3 | Panacenutics | Undisclosed | 2 |
| Verus Global | iPEC Coaching | Undisclosed | 15 |
| BUBS Godis | Orkla | Undisclosed | 5 |
| BurnAlong | Tivity Health | Undisclosed | 6 |
The average time it took to sell a company in the provided data was approximately 9.67 years, while the median time was 8 years. This means that, on average, the companies were sold after nearly 9.67 years since their incorporation, and the median indicates that half of the companies were sold before 8 years, and the other half were sold after 8 years.
To double check the work,
The table provides a valuation analysis for each of the companies based on a 30% discount rate, taking into account their selling price and the number of years since their incorporation. Let’s analyze the valuations for each company and provide a summary of the findings:
| Company | Selling Price (in millions) | Years since Incorporation | 30% Discount Rate |
|---|---|---|---|
| MyFitnessPal | 475 | 10 | 152.49 |
| Strava | 3,100 | 10 | 993.17 |
| Endomondo | 85 | 6 | 25.33 |
| MapMyFitness | 150 | 8 | 49.4 |
- MyFitnessPal: At a 30% discount rate, MyFitnessPal’s valuation stands at approximately $152.49 million. This figure reflects the present worth of its expected future cash flows, taking into account the discounting effect.
- Strava: Strava’s valuation is substantially impacted by the 30% discount rate, resulting in a present valuation of $993.17 million. A higher discount rate leads to a considerably lower present value.
- Endomondo: With a 30% discount rate, Endomondo’s present valuation is $25.33 million. The shorter time since incorporation and the lower selling price contribute to relatively higher present valuations.
- MapMyFitness: At a 30% discount rate, MapMyFitness’s present valuation is approximately $49.40 million. This demonstrates how higher discount rates lead to lower present values of expected future cash flows, emphasizing the importance of selecting a discount rate when assessing its value.
Notably, when applying a 30% discount rate, the valuation of ABC Fitness would be similar to Endomondo. The valuation figures of $22.8 million from the Market Approach and $25.33 million from the VC method for Endomondo appear reasonable, assuming that both methods were rigorously applied and are consistent with the company’s risk profile and financial characteristics. The overall reasonableness of the figures depends on a thorough assessment of the methods used, the underlying assumptions, and the appropriateness of the chosen discount rate in the context of the company’s unique characteristics.
By employing the discounted cash flows approach with varying discount rates, the present valuations for these companies reflect the estimated worth of their future cash flows in today’s economic context. Recognizing the substantial influence of the time value of money, it is imperative for investors and analysts to carefully select and consider the appropriate discount rate when assessing the value of potential investments.
Conclusion
Based on the market approach valuation methods, Eqvista determined that the fair market value of ABC Workout was $22.8 million. This valuation was supported by the strong market demand for fitness apps, the projected growth of ABC Workout, and the high quality of the app.
To determine how much of the company ABC Workout must relinquish when raising $5 million, we can calculate the ownership stake that this investment represents based on the company’s valuation of $22.8 million. In this scenario, the ownership stake is derived using a straightforward formula: Ownership Stake = (Investment Amount / Valuation) * 100%. With a $5 million investment and a valuation of $22.8 million, the calculation yields an ownership stake of approximately 21.93%. Therefore, in order to secure the $5 million, ABC Workout would need to allocate roughly 21.93% of the company to investors. This percentage reflects the equity they would acquire in exchange for their investment.
How Eqvista Helped?
By collaborating with Eqvista, ABC Fitness was able to identify a reasonable pre-money valuation for their Company. Additionally, Eqvista’s expertise provided ABC Fitness with valuable insights into the intricacies of the mobile app market, shedding light on the key factors that influence mobile app valuations.
As for the specific assistance in calculating the company’s value, the provided information does not include the exact amount of help Eqvista contributed in this regard.
Regarding equity preservation, the initial proposition by the VC for a pre-money valuation of $15 million takes on greater significance. Thanks to Eqvista’s support, ABC Fitness was better equipped to ascertain their accurate valuation. The equity saved, in this context, is the difference between the VC’s initial proposal and the genuine valuation determined with Eqvista’s assistance. It represents the portion of ownership that ABC Fitness was able to retain or negotiate effectively, safeguarding their equity stake from potentially being undervalued. However, the precise amount of equity saved can only be determined with knowledge of the actual valuation arrived at through Eqvista’s involvement, which is not provided in the available information.
Testimonial
Eqvista was a valuable partner in our mobile app valuation process. Their team of experienced professionals provided us with a comprehensive and insightful valuation that was well-supported by data and analysis. Eqvista also helped us to prepare for investor meetings and answer questions from investors. We would highly recommend Eqvista to any company seeking a mobile app valuation.
Need Expert Assistance in Valuing Mobile Apps?
Valuing a startup can be challenging, especially when it comes to negotiations between current and prospective investors. However, having access to various metrics and financial information can make determining a range for the startup’s valuation easier. This range can then be used to decide on the valuation for the funding round.
Eqvista will help you to estimate your mobile app’s value using a simple formula based on your current metrics, such as LTV, CAC, and user count. You can obtain a valuation for your app by consulting professional service experts at Eqvista. Contact us now.
