Valuing crypto projects is always a greater challenge than valuing traditional, “fiat” projects. The sector is simply too new and virtually all of the projects in the space too early stage, for any reliable metrics to have developed. As a result, we find wild swings in price, seemingly hollow projects with amazing market caps, and outstanding projects which appear to be radically undervalued.
Presearch is an excellent case in point. The PRE token is used to pay users to search. In turn, the token is purchased by various players to either (i) stake key word/phrase searches, or (ii) purchase advertising space on the search home page. With the tokens from the latter, Presearch (the company) then pays users to search — rinse, repeat.
And this virtuous circle is not a theory, it’s happening today. In other words, Presearch is a viable business, a “going concern” in accounting terms, which generates measurable revenue and has measurable growth — all a rarity in the crypto space. As a result, we are discussing the value of an actual, vibrant, growing business — not of someone’s pipedream.
Further, the company also has another, fiat revenue source: search revenue paid by the various search engines it uses to provide its services. This revenue is used to cover operational expenses, in addition to being used to purchase yet more tokens to pay search users. Over time, the amount allocated to token purchases may evolve into a fixed percentage of revenue.
(Interestingly, until very late last year, the company actually had to pay search providers for the searches that its users input. So, the more users, the more expense. Needless to say, the company — then still in the developmental phase — didn’t go out of its way to attract additional users. Now that this expense item has turned into a revenue item, and with Presearch about to launch its ad platform, the company is avidly trying to attract more users.)
Given this background, the fact that Presearch is in a space where there are abundant metrics, and some additional data, it is actually possible to calculate the value of the token with a reasonable degree of accuracy. That is the purpose of this article.
Let’s start with some hard facts.
Google, the 800-pound gorilla of the online search space, is paid about $75/1,000 searches (or $0.075/search); Bing is paid about $73. Presearch pays users 0.25 tokens per search.
So an initial, simplistic value of the token would be 30 cents ($0.075/0.25 = 30 cents). If Presearch earns 7.5 cents per search and it pays all of that to users (which admittedly isn’t the case, but we’ll address that below), and it pays 0.25 PRE per search, each PRE token should be worth four times that value. (If, say, 0.20 PRE were paid for each search, each PRE token would be worth five times that value, etc.)
There are several problems with this analysis, not the least of which is that it is static and that companies and tokens are also (often mainly) valued on what’s going to happen (presumably) in the future, not just on what is happening now. (For instance, price/earnings ratios will usually look about 10 years forward, hence the typical P/E ratio is in the high teens.)
More importantly, for the immediate future at least, this valuation also ignores the fact that not all of the money Presearch receives will be used to purchase tokens. (As the revenue from searches increases, the percentage of that revenue which is used for tokens will increase; currently, the revenue used is less than half.)
Note that there is a third source of revenue that I am ignoring because it is temporary: revenue from the sale of tokens. There are 830 million tokens which have yet to be “minted”. The company can mint them and sell them to users, stakers and advertisers, and it can use them to pay search users. While this number may seem large, with 1M users (the project already has about 1.3M registered users) holding 1,000 tokens, 1B tokens will disappear quickly — and that is without counting the effect of HODLers, PRE whales (i.e., big HODLers) and, perhaps most importantly, stakers (who could ultimately represent the largest repository of tokens).
(As an aside, the company has no intention of minting massive numbers of new tokens. Tokens will only be minted as needed. Presearch intends to publish guidelines for minting new tokens before the end of January 2020.)
So, how do we value PRE tokens on a “going-concern” basis?
The easiest answer is to look at other companies. Again, in the search space, there is a single obvious candidate: Alphabet’s Google.
In 2019, Google users conducted about 5.6 billion searches per day. Alphabet’s 2019 quarterly revenue was $32.6B for search and $4.25B for non-search.
And, conveniently, Alphabet’s market cap is almost exactly $1T. Rounding down slightly (thereby taking into account Alphabet’s non-search revenue), this means Google’s valuation is equal to $200 times the number of daily searches.
Bing’s numbers are comparable, while the business is much smaller. (Although Bing’s recent revenue numbers did startle Wall Street because they were so large.)
Users conduct about 300,000 searches per day using Presearch, or over 10 million per month. (Again, Presearch is a current, legitimate and, by crypto standards, large business — a true rarity in the crypto space.) Therefore, Presearch should be worth about $60M. Assuming that all 1B PRE tokens are in circulation (so, on a fully diluted basis), and assuming future growth comparable to that of Google (more on that just below), each PRE token should currently be worth about 6 cents. (On a non-fully diluted basis, i.e., with the current number of tokens in circulation, the token should be worth around 35 cents.)
PRE’s current market cap is about $2M, and, with only 170 M tokens in circulation, its token price is just over 1 cent. This understates PRE token value by a factor of over 30.
Now let’s look at growth. Google’s search growth has stabilized at approx. 10–15% per year. Google is simply so enormous and already has such a large percentage of searches that it has comparatively little room to grow, especially by its own historical standards. In fact, almost all of its growth is due to consumers increasing the number of searches they conduct rather than from taking market share from other search engines.
Presearch is in a rather different position. It is nanoscopic compared to Google and could literally increase the number of searches its users conduct by three orders of magnitude and still be tiny (only microscopic) compared to Google.
Google’s growth prospects, as with those of any company, are factored into its valuation; Presearch’s growth prospects should likewise be taken into consideration in determining how much the company — or, more precisely, its tokens — are worth.
Here, we must speculate a bit because we don’t know how fast Presearch will grow. However, I believe it is safe to conclude that, for the foreseeable future, Presearch will grow far faster on a percentage basis than Google. The number of searches could literally and easily grow by millions per month (and using our metric above, daily searches could increase by thousands per day) for the foreseeable future. In fact, this is likely because, for the reasons explained above, Presearch has only recently begun actively encouraging growth in the number of Presearch users. Therefore, the Presearch token valuation should be considerably higher based on a metric which takes growth in the number of searches into account.
Pleasantly, the relationship between growth and price is essentially linear. A growth rate which is 10 times that of Google’s (100–150% annually, which can be achieved almost laughably easily) results in a valuation of approx. $600M for Presearch. At current crypto prices, this wouldn’t even put PRE tokens in the top 15 in terms of market capitalization.
This would also mean that, even on a fully-diluted basis, each Pre token should be worth about $0.60.
Now, there are some other factors to be considered, mentioned above, which might affect this valuation.
First, not all of Presearch’s search revenue will be used to buy tokens. (In the same way that not all Google revenue turns into profit or a valuation metric.) However, once that revenue reaches a significant level (probably during the first half of this year), an ever-growing percentage will be. Further, HODL, whale and staked tokens not in circulation will reduce the number of available tokens and, as a result, increase the valuation of circulating tokens.
For instance, if the staking platform to be launched on January 29 is a success, the number of circulating tokens could actually be drastically reduced. This would result in a significantly higher, fully-diluted valuation (i.e., by excluding staked tokens from the dilution calculation).
Second, one of the unique challenges in valuing any company in the crypto space is the question of whether the value of a project accrues to the token used in the project or the equity ownership of the company which runs the project — or both.
The openly and repeatedly stated goal of the owner of Presearch (the company), Colin Pape, is to transfer the project to a community-governed foundation as soon as the project is self-sufficient. This, coupled with the fact that the company has never raised outside equity or completed any other transaction to try to have any value whatsoever accrue to its stock ownership, means that all of the value of the ecosystem will accrue to the tokens. This once again makes Presearch relatively unique in the crypto space.
There are other factors which might affect the value of any token, but the major ones have been addressed here.
So, what’s the bottom line? What is a PRE token worth?
Remember our initial 7.5 cent/search analysis above? Using that, and based on today’s numbers in terms of searches and not factoring in any increase in the number of searches, one PRE token should be trading in the 30-cent range. Given 170M tokens in circulation, this would result in a market cap of about $60M — or 30x from current levels.
However, using our $200/daily search number and still ignoring growth, total market cap should be $80M, which makes current levels even further off.
Finally, based on growth prospects, assuming that 50% of all tokens will be staked or otherwise not be in circulation, and applying a traditional P/E-like analysis (at the low end of the scale, to be conservative), there is a very strong argument that total market cap should be in the $500–600M range and that one PRE token should be valued between $1 and $1.50.
So, why is the token priced so far below these levels? Some of the answer lies in the generally difficult past two years in the crypto space and the time required to complete the initial launch of an MVP (Minimum Viable Project). Both of these causes are general to the crypto space or to start-ups.
However, a significant portion of the answer is specific to Presearch.
In the spring of 2019, the company engaged two parties to market the project, mainly in Asia. As part of that process, it paid them millions of tokens.
Tragically, rather than perform as requested, over the balance of 2019, the two parties began dumping PRE tokens, absolutely destroying the price in the process. Fortunately, a bit of detective work tracing wallets and some logical deduction show that these parties appeared to have run out of tokens to “dump” in late 2019.
However, the damage was done and the PRE price fell from the 6–9 cent range (a reasonable floor based on the above analysis) to well under one cent, seriously undermining the project’s credibility — whether deserved or not.
Since the token dumping stopped and, by pleasant coincidence, the final pieces of the MVP have almost been finalized, the PRE token price has increased from its all-time low by about 8x. As the price analysis above shows, however, even at that price, the token is horribly undervalued.
Another factor holding down the price is the lack of listing on a top-tier exchange. PRE is currently on HitBTC and Probit. Many users have serious issues with HitBTC, so Probit was recently added and quickly became the primary exchange for PRE transactions. While Probit is an excellent exchange, it is not a top-tier one. Presearch and its community are very actively trying to obtain better listings, but the low market cap and correspondingly low volume (measure in USD and BTC, not in PRE) are problematic. They also create a bit of a chicken-and-egg problem (low volume makes it difficult to get on a better exchange and not being on a better exchange makes it difficult to increase volume). The goal is at least for the token to be traded on one additional, larger exchange by the end of Q1 2020 (so after the boost expected from the ad platform).
What are the biggest risk factors that would prevent the token from reaching its “fair and reasonable” price? As usual with a start-up, the biggest risk factor is execution. By now, however, the team has shown that they, along with an amazingly active Presearch community, can execute. The ad platform release is a major milestone and the last piece of the puzzle — with, of course, miles of improvements still to come. If the initial release of the ad platform is reasonably successful, the token price will almost certainly increase markedly and begin to approach fair value.
Therefore, under almost any scenario and based on any metric one might choose for the search space, the current price of just over 1 cents i both absurd and almost certainly represents an incredible opportunity — even for the crypto space.
 By Timothy Enneking, Managing Director of Digital Capital Management. Mr. Enneking is an advisor to Presearch and also owns PRE tokens. All of the information which is cited in the article is publicly available.