The median EV/Revenue multiple for the 90 public companies comprising the SEG Internet Index rose to 2.9x in 2011, up 26% from 2010’s 2.3x and 45% from 2009’s 2.0x. Indeed, the 2.9x median valuation was the highest SEG Internet Index multiple since 2007’s 3.0x. When analyzed quarterly, the median EV/Revenue Internet multiple behaved similarly to the market valuations of public software and SaaS companies in our tracking indexes – peaking in 2Q11, then declining sequentially in 3Q11 and 4Q11 (Figures 21 and 22).
The SEG Internet Index had the widest range of median EV/Revenue multiples of the three SEG indices, ranging from a high of 22.1x (Baidu), to a low of 0.14x (Overstock.com) (Figure 23).
Fourteen public Internet companies had EV/Revenue multiples of 8.0x or higher at the close of 4Q11 – eight were foreign entities, and six were domestic. The median TTM revenue growth of these investor darlings was eight times the growth rate of the 21 companies that closed 4Q11 with a median valuation below 1.0x, and the median EBITDA margin of the market outperformers was 60% greater than the underachievers.
Early in 2011, China-based Internet companies were the darlings of investors. But in 3Q11 and 4Q11, valuations of Chinese Internet companies fell victim to reports of a slowing domestic economy and accounting irregularities. In 4Q11,
the eighteen companies in our SEG Internet Index with headquarters in China posted a median EV/Revenue multiple of 3.7x, down more than 50% from the median 7.5x valuation they posted in 2Q11 (Figure 24).
The median market multiple of North American Internet companies, however, exhibited modest growth in EV/Revenue in 4Q11, advancing to 2.6x from 2.4x in 3Q11. And although the multiple differential narrowed, Chinese companies still finished 4Q11 with a median EV/Revenue 42% higher than their North American based peers.
Throughout most of 2011, Internet companies with revenue greater than $1 billion received the highest median EV/Revenue, benefiting from their market dominance and investors preference for strong balance sheets and stability (Figure 25).
That didn’t mean speculation was entirely abated. The smallest (as measured by annual revenue) Internet companies saw their median TTM EV/Revenue multiple jump 35% YoY in 4Q11, as Internet excitement mounted following LinkedIn’s successful IPO.