Public Internet Company Financial Performance

In 1Q12 there were significant disparities in revenue growth rates among consumer focused public Internet companies…

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

Public companies comprising the SEG Internet Index posted a stellar median TTM revenue growth of 29.3% in 1Q12, the highest of our three tracking Indices (Figure 18).  1Q12’s revenue growth compares quite favorably to 1Q11’s 23.4% revenue growth rate, and is even more impressive considering the SEG Internet Index has the highest median TTM Revenue ($393.6 million) of the three SEG indices.  By comparison, public software companies had median TTM revenue of $370.8 million in 1Q12, but a considerably lower TTM revenue growth rate of 14.2%.  Of the 15 public Internet companies with TTM revenue of $1 billion or more, nearly three out of four generated TTM revenue growth rates of more than 20% in 1Q12.  The high performing Internet companies span an array of Internet categories, including eCommerce (Amazon, eBay), Search (Google, Baidu), Gaming (Tencent, Zynga) and Travel (Priceline, Expedia).

In 1Q12 there were significant disparities in revenue growth rates among consumer focused public Internet companies, thanks to the virtually unlimited number of prospects and the demonstrated ability of some to grow exponentially by “going viral”.  Indeed, the SEG Internet index has the widest distribution of revenue growth rates among our three tracking indices (Figure 19).  Nearly ten percent of public Internet companies achieved TTM revenue growth at or above 100% in 1Q12, including Groupon (415%), Qihoo (191%), Youku (131%), Zillow (117%), LinkedIn (115%), KIT Digital (102%), and Pandora (100%).  At the other end of the spectrum, over 10% of SEG Internet providers posted negative revenue growth, including Tree.com (-71%), Yahoo (-21%), and AOL (-9%).  Yahoo and AOL are great examples on how quickly leading consumer Internet companies can go out of favor, something, Groupon, and other high flyers, should monitor closely.

The median EBITDA margin of public Internet companies declined to 13.7% in 1Q12, down sharply from 16.8% in 1Q11.  The drop can be largely attributed to higher sales and marketing expenses to drive market adoption and a number of newly public Internet providers that had eye-popping revenue growth but weak profitability.

Jive Software is a good example, listing in 2011 and posting a 67% TTM revenue growth rate and -49% EBITDA margins in 1Q12.  Nevertheless, an extended period of consistent profitability has bolstered the balance sheets of Internet providers.  For most Internet providers, however, revenue growth appeared to compensate for lower margins.  By the close of the first quarter, the median Cash & Equivalents of companies comprising the SEG Internet Index was $161.8M, up 32.2% from 1Q10 (Figure 18).

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