Or, why I believe $BAT is worth $1.72 today!

Crypto tokens by nature are notoriously hard to value, as there is typically no intrinsic value and the current price is usually driven by speculation and an assumption of future growth. Over the past few months, I've been really excited to see some of the performance and growth metrics shared by Brave, and would like to share a price analysis here. Let's have some fun with napkin math.

First, at risk of sounding like a hype post, here are a few growth metrics:

• Advertiser growth
  • On May 6th, there were 1,300 waitlisted advertisers.
  • Just yesterday (8/29), there were 6,000 waitlisted advertisers. 
  • This is ~500% growth in less than 4 months!
• User growth
  • This one has been the hardest to track. The most recent DAU numbers are:
    • 5/8: 1.95m
    • 7/3: 2.2m
  • Annualized, this is a 120% growth rate per year.
  • User growth is almost certainly the bottleneck, given the advertiser waitlist.
• Publisher growth
  • Number of Verified Brave Rewards Publishers Reportedly Grew 900% in 12 Months
  • https://batgrowth.com/

But more importantly, I think there is sufficient evidence from their advertising platform performance to take an early stab at an intrinsic value for BAT. Notably, this is before adding in factors for speculation, future growth, etc.

1. Price per ad

Let's start with the price of an ad. In the United States, I earn approximately 0.1 BAT per ad. Of course this will vary by user, country, behavior, etc.

Since Brave has a 70% revenue share with users, thereby taking a 30% cut for their own revenue, we can calculate the cost to show me an ad as:

0.1 BAT / 70% = 0.1428 BAT

In the world of advertising, this is referred to as an impression. In other words, as an advertiser, 1 BAT will buy me 7 impressions.

2. Click-through rate

Click-through rate refers to the number of impressions that are required to get a response, measured in clicks. Early data from Brave shared here indicates a 22.3% CTR, roughly 11x higher than the industry standard of 2%.

“With over 90 campaigns that have run from 71 advertisers to date, Brave Ads have delivered a 22.3% clickthrough-rate across the platform, compared to an industry average of under 2%,” said Brendan Eich, CEO and Co-Founder of Brave. “28% of clickthroughs have resulted in landing page visits of 10 seconds or longer. This validates our privacy-preserving approach that treats users as sovereign and rewards them for their attention, and that reconnects advertisers and users directly, for best in class results.” (source)

With this, we can extend the price per ad to price per click:

1 BAT = 7 impressions = (7 * 22.3%) clicks = 1.561 clicks

3. Cost per click

Here we'll take a little bit of a liberty, since we don't yet know the value of a click. This will be affected by many factors: funnel conversion rate, level of expected fraud in the system, advertiser trust in the platform, etc. As a point of reference, the CPC for Facebook's advertising platform is $1.72, and for Google Adwords it's $2.69 (source).

Let's assume that Facebook and Google can command a higher CPC by using a higher level of targeting. 

But, let's be fair - Brave isn't Facebook or Google, yet... After all, they have troves of data, and while Brave is able to privately use your browser behavior to serve targeted ads, it's also a fairly new platform. Let's assume the ad targeting is only half as good as FB / G, therefore reducing the CPC by 50%. Truth be told, with the advertiser interest so far, Brave might actually have stronger performance than FB / G. I'd love for Brave to release some advertiser testimonials in order to validate some assumptions here! But, let's move forward with a 50% discount:

CPC = $2.205 per click (FB / G average) * 50% discount = $1.1025

Therefore:

1 BAT = 1.561 clicks * $1.1025 cost per click = $1.72

$1.72 is reason for some optimism! This represents a 10x increase over the price today ($0.175). Apply your own assumptions and discounts accordingly.

In total, our calculation looks like this:

1 BAT = 70% * $clickThroughRate * $costPerClick / $batReceivedPerImpression

4. Other considerations

This is an overly simplified approach that ignores many important factors. For example:

• speculation,
• mismatches in supply/demand (however if the BAT economy is active this will wash out by auto-adjusting CPC in terms of BAT)
• any upward pricing pressure that might happen as a result of lost tokens,
• future BAT use cases.

If anything these factors should make a case for a higher BAT value, but I'm intentionally ignoring them for now, since they aren't objectively measurable.

However, and most importantly, this assumes there will eventually be enough pricing pressure from advertisers to increase BAT to $1.72, and enough users to consume that ad capacity. Both of which are no small feat. I'm sure the team has a lot of work in front of them, but given growth rates so far, I have faith we'll get there.

Thanks for reading!