Public Internet Company Market Valuations: By Product Category

SEG Internet Index companies grew median TTM revenue an impressive 24.0% in 3Q12, up from 20.8% 3Q11.

This excerpt is from our complimentary Q3 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

The public market valuations of companies comprising the SEG Internet Index varied widely by Internet category in 3Q12 (Figure 23).  Social Media led the pack, closing 3Q12 with a median EV/Revenue multiple of 8.8x, down sharply from 19.4x in 3Q11.  Companies with market valuations exceeding the median Internet EV/Revenue multiple included LinkedIn (14.5x), Yelp (12.1x) and Mail.ru Group (10.9x).  Notably absent from this list is Facebook, whose median EV/Revenue multiple nosedived from 16.0x to 7.9x.

Investors seemed wholly disinterested in Internet Commerce providers in the third quarter.  The group closed 3Q12 with a median 0.7x EV/Revenue multiple, by far the lowest of our Internet categories.  Lackluster revenue growth and EBITDA margins, well below the Internet median, is surely to blame here. The notable exception was Mercadolibre, which posted a median EV/Revenue multiple of 10.0x, over fourteen times the Commerce category median for 3Q12.  Mercadolibre, Latin America’s eBay, was boosted by investors enamored with emerging markets and the company’s 37% TTM revenue growth rate in 3Q12.

TTM revenue growth and EV/Revenue market multiples exhibited strong correlation in Q3 (Figure 24).  The three categories (Commerce, Content & Media, Infrastructure) with the lowest three TTM revenue growth rates posted the lowest median EV/Revenue multiples.  By contrast, the two product categories (Social, Services) with the highest TTM revenue growth, posted the two highest median EV/Revenue multiples.

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