Why Web-Based Businesses May be the Hot Investment Trend of 2021
As calls go, this one was fairly typical. A woman who already owned several brick-and-mortar businesses in New York contacted Website Properties to learn about the possibility of acquiring an online company. “She didn’t want anything with physical inventory and didn’t want to work on it eight hours a day,” says founder David Fairley. “She was new to online business and looking for help in navigating through the process.”
Such conversations are becoming increasingly common. In a year of seismic shifts that impacted every sector of society, 2020 turned conventional ideas about investments upside down. As entire industries took a severe financial hit, what had previously appeared to be low-risk acquisitions became liabilities, especially brick-and-mortar companies reliant on in-person traffic. Meanwhile, web-based businesses, already thriving, have become a lifeline for house-bound families worldwide.
This fundamental transformation suggests that it’s time to start seriously considering web-based acquisitions as an investment class on par with stocks and real estate, according to Fairley. “We’re seeing a significant increase of interest in acquiring online businesses,” he says. “People are starting to reconsider where they want to deploy their money given that cash in the bank is not earning any interest rate of note and is depreciating as the Fed spigot continues to digitally create more money.”
Web-based businesses offer multiple benefits to investors, including relatively low risk, a good return on investment (ROI), and flexibility and convenience. Demand is soaring for everything from cleaning products and home office equipment to wine and online courses; companies that can provide these goods and services without requiring consumers to leave home are well-positioned to expand in coming years.
Key advantages to online business include:
Low Risk. Traditional forms of investment are the stock market and real estate, which have been peaking at all-time highs, increasing the downside risks for investors. “Unlike most stocks, website businesses provide ongoing cash flow like a dividend, which can continue to grow and appreciate the asset value over time.” says Fairley. “The difference is that your destiny is more in your own hands. If you pick a solid business that has good fundamentals, you can mitigate risk and thrive in any kind of environment.”
Real estate has had its own issues – just ask any commercial or residential property owner that is relying on renters or leases to manage their mortgage payments. In the last year, landlords have needed to work with renters who lost their jobs and commercial tenants who were forced to close or severely curtail their operations.
A third option historically has been investing in a brick-and-mortar business. In previous years, this would be a sound strategy if the company had a solid foundation and built-in clientele. But once again, the pandemic has revealed previously unseen vulnerabilities. “In 2020 there was a lot more risk involved in owning traditional businesses,” says Fairley. “Instead of buying a cafe where you’re dealing with social distancing and limited clientele, people are paying more attention to opportunities to go online.”
ROI. A key part of buying any business, whether it’s web-based or in person, is choosing wisely. Those with established track records and histories of positive cash flow are well-positioned to yield ROI’s of between 25 and 50 percent in the online space, due to their low overhead and minimal need for employees. “If you buy a business that is making $100,000 annually and you paid fair market value, as long as it keeps doing what it’s doing, it can earn you a 33 percent dividend,” says Fairley. “As the business grows, you have a more valuable business and ongoing cashflow.”
One popular option that has emerged in the last decade is Fulfillment by Amazon (FBA). Amazon marketplace gives sellers immediate access to hundreds of millions of buyers. It also saves web-based business owners headaches related to logistics and shipping, inventory management, merchant accounts, etc. and includes potentially unlimited storage space, all factors that can reduce overall costs, time commitment and overhead.
Flexibility and Convenience. One upside of the pandemic has been the realization that for those fortunate enough to telecommute, work can happen from anywhere. For online business owners, that means an unprecedented level of autonomy when it comes to where and when work happens. Traversing the space from the bedroom to the home office is far less time-consuming than a 90-minute journey in traffic to an urban center, and technology, such as zoom has advanced sufficiently to make in-person meetings unnecessary in many industries.
“We’re seeing all these interwoven elements that allow people so much more freedom and more opportunity to exit in the future without geographical restrictions,” Fairley notes. “You can sell to anyone in the world. Website Properties has deals with a seller in Germany and a buyer in Dubai. We just closed a deal with sellers who live in Cyprus and sold to a Canadian company. Being an online entrepreneur opens up the world and gives people more time for the rest of life.”
Demand. It’s too early to tell if the pandemic has permanently changed the way we shop, but several recent studies point in that direction. According to research firm eMarketer, US e-commerce sales will have increased by 18 percent to $710 billion in 2020. Globally, more than half of the respondents to a United Nations Conference on Trade and Development (UNCTAD) survey reported not only that they now shop online more frequently but also that they would continue to do so in the future.
Fairley has seen how those numbers play out with his clients who own online businesses. “The vast majority that we’re representing for sale have done remarkably well despite the pandemic,” he says. “Necessity items are in high demand, as well as anything related to working from home.”
Overall, web-based companies are entering a new era, one whose existing momentum has been accelerated by COVID-19. As investors look for new ways to maximize profits while minimizing risks, they may represent the next frontier. “There’s a maturing process of online business, and millions are being created every day,” says Fairley. “We’re seeing fascinating new deals come to the table. Things change every day and there are enormous opportunities.”
