• by Gavin O'Malley  @mp_gavin, April 26, 2010

In a forecast that is sure to make newspaper publishers cringe, Craigslist will generate an estimated $122 million in revenue this year, and -- ready for this? -- profits of $88 million to $99 million, according to new estimates from the classified ad consultancy AIM Group.

If true, that would represent a 22% hike in revenue this year for the "free classified" site -- up from $100 million in 2009, according to AIM -- formerly the Advanced Interactive Media Group.

More than half of the company's revenue comes from recruitment advertising, while 30% comes from "adult services" ads - what AIM calls "thinly disguised advertising for prostitutes" -- while about 17% (almost $21 million) comes from apartment ads in New York City, AIM estimates.

"For 2010, its 'adult services' revenue will be three times the revenue it generated in that category in 2009," notes Jim Townsend, editorial director of the AIM Group and its Classified Intelligence Report. "We're astonished at the explosive growth Craigslist continues to show, even in a very tough economy."

As the AIM Group notes in its report, Craigslist, parent of Craigslist.org, is presently locked in a fierce legal battle with EBay -- its only outside shareholder and its largest direct competitor in the U.S. and Canada.

"Craigslist claims to have a 'relatively non-commercial nature, public service mission and non-corporate culture,' but in reality it turns so much profit that it's a gold mine for its owners," said Peter Zollman, founder of the AIM Group. "Per employee, it generates more than $4 million in revenue and profits of $2.9 million to $3.2 million -- staggering numbers any way you count." That said, AIM sees several serious challenges facing Craigslist over the coming months and years.

In particular, eBay is coming at Craigslist head-on, and has already beaten Craigslist in some international markets. "In the U.S., eBay Classifieds -- the new name for Kijiji in the United States -- is an also-ran," according to the AIM Group. "But you can bet eBay is determined, aggressive and has lots of tricks up its sleeve."

Also, "there are a slew of other competitors, some regional -- Marktplaats in the Netherlands, for instance, owned by eBay, and Blocket in Sweden, owned by Schibsted -- that are dominant in their markets."

Other competitors, which AIM calls "YACLWs" for "yet another Craigslist wannabe," are actively trying to beat Craigslist at its own game, although most are essentially meaningless as marketplaces.

Increasingly, Craigslist is also becoming known as a haven for robbers, scam artists and even the "Craigslist killer." "We believe that reputation is somewhat undeserved," says the AIM Group. "There are only a tiny number of problems among the millions of user interactions ... But if you could see the daily flow of Craig scam alerts we see every day, you'd understand why this is an issue."

The company was also hammered hard by law enforcement officials over its publication of ads for prostitutes in the United States. "Again, it's a bit unfair," says AIM. "Craigslist is protected fully by the U.S. Communications Decency Act from prosecution for ads posted by its users."

Furthermore, AIM calls Craigslist's interface "antiquated" and increasingly overwhelmed by spam and scam ads, and taking a "bare minimum" approach to customer service -- which may be driving users away, or may allow another site, like eBay Classifieds, to grow at Craigslist's expense.

Finally, and perhaps more disturbing for Craigslist, AIM suggests that its site traffic may have peaked in August 2009 -- when across its U.S. sites it saw nearly 56 million unique visitors, according to Compete.com. It's been nearly flat since February, at about 48 million visitors a month. That's off about 8.5 percent from last August.