Week after week, investors have seen multi-billion deals for online businesses with suspect business models. In January, Goldman invested in Facebook at a $50 billion valuation. Zynga's reported $7-$10 billion valuation surpassed that of software giant EA Games. With its recent I.P.O. announced, Groupon even values itself at $15 billion. Some question the reason behind such high valuations...the answer is immense revenue growth. The true question is whether this revenue growth is sustainable:
"Why are Venture Investors placing colossal valuations on consumer Internet companies like Facebook, Groupon and Zynga? Their revenue growth is simply off the charts.
The Wall Street Journal reported Friday that Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille, scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.
Their ridiculous revenue growth rates actually rival those of the four largest Internet companies–Google, eBay, Yahoo and Amazon.com–early on. Taking a look at the line graph below, Groupon and Zynga’s charted growth is steeper than San Francisco’s famous Filbert Street. Over the longer haul, Facebook’s sales fall short of the two Internet kings, Google and Amazon, but top those of eBay and Yahoo, in their first six years.
Granted, Amazon, Google, eBay and Yahoo grew up during the dot-com boom a decade ago when online advertising and e-commerce were in their infancy–so their growth is arguably more impressive–but the chart does highlight just how fast this latest crop of consumer Internet companies has come along, and why venture firms have been fighting to own a piece.
Not only is revenue exploding, but profits are, too. Through the first nine months of 2010, Facebook made $355 million, meaning it likely scored a profit well over $400 million, if not $500 million, for the year. Google’s net income in 2003, its sixth year, was $399 million. Zynga’s profit was also about $400 million in 2010, only its third full year.
Compare all of this with the software industry. As we analyzed previously, less than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less–and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.
A big question for these young Internet companies – is the growth sustainable?" WSJ Blog
Khaled - Fed Up
[Chorus - Usher] It was all a dream Yeah homie I'm on my job And you can't take that away from me Yeah I got my team And I got all of my niggas behind me And they give me the love I need Yeah, I got my foot in the door Still hustling for more Checking the game Now I'm back in the light Yeah, I'm fed up Hey, I'm fed up Hey, I'm fed up I'm so sick and tired of being sick and tired
[Verse 1 - Young Jeezy] I am absolutely positively on my grizzy Even though I'm sick and I'm tired, I gets busy Started 62, what ended up a Frisbee And me I like to stand at the stove until I'm dizzy Ball so hard it's like I brought the game with me Left my glove, so why you thought I brought Jermaine with me? 'Bout to paint a perfect picture like I brought the frame with me I give it all up before I let the fame get me I got niggas tryna sue me, bitches tryna do me Way these niggas actin' you'd thought they never knew me But these niggas know me and half them niggas owe me I'm fed up, that's why I'm actin' like the old me
[Chorus]
[Verse 2 - Rick Ross] I'm sick and tired of you suckas so now I'm fed up Somebody catch his chain I'm 'bout to tear his head off Shawty bendin' over know I'm 'bout to tear it up Before you let your top back, get your bread up Made history, but now we claiming victory Get'cha out the White House, so back to your efficiency Suckas finny and I know you haters hear me Like the IRS, you wonder what I'm makin', yearly! Let them brown bags circulate, so why perpetrate? We shinin' than the bottom cuz we're down to twerkulate Lookin' at the parkin' lot, better get your mind right Oh, you better be broke cuz the time's right
[Chorus]
[Verse 3 - Drake] Uh, me and Wayne was gettin' high on 'em He leaned over and told just don't retire on 'em And when they give ya they shoulders, never cry on 'em And when they love you to death, never die on 'em And the question still remains
Have I counted all the money that I managed to obtain? Niggas dedicatin' overtime but damagin' my name And somehow I'm still the hottest, motherfucker in the game
[Verse 4 - Lil Wayne] I'm happy to be back man.... I'm tired of these haters That's why I go hard like AC Slater Weezy Baby here, y'all prenatal I just get the beat and murk it out like Frado Uhh, I'm sick of being criticized That's why I'm higher than the Star Trek Enterprise I do it big don't get mad cuz you minimized I keep a red flag case I get penalized Uh, It's Young Money like you didn't know Stop playin' I hit Drizzy with the give and go It was all a dream, now we the Dream Team Who tryna see us? You seein' things Hustle like I still pay rent man Got a chest full of heart no tin man Uhh.. Kha Kha Khaled I'm fed up Flow wake the dead up Weezy
[Verse 5 - Usher] Yeah I've been in this bis' breaking records since '9-4 So I ain't gotta brag about records that I've brought Records that I hold Records that I've sold Man I'm fed up with these niggas relievin' my lingo Yeah, don't bite the hand of your provider You say that I ain't influence you you're a liar I'm on fire, you're just a lighter You're gonna wake up and realize
[Chorus] It was all a dream Yeah homie I'm on my job And you can't take that away from me Yeah I got my team And I got all of my niggas behind me And they give me the love I need Yeah I got my foot in the door Still hustling for more Checking the game Yeah I'm back in the light Yeah I'm fed up Hey I'm fed up Hey I'm fed up I'm so sick and tired of being sick and tired
I want some of whatever you're on dude.
PM me
groupon valuation is so overvalued. Nobody in their right minds should pay 15 b for a local flash sale WEBSITE
Exactly!.......I think Facebook is overvalued as well. I believe social media is whatever is hot at the moment, remember when myspace was the big thing? then comes facebook and myspace falls off the map. Give it some time.
Groupon cofounders Brad Keywell and Eric Lefkofsky might have made as much as $600 million and $1.8 billion, respectively if they had accepted Google's $6bn bid...ridiculous.
It's the VC's that are getting ancy for a liquidity exit with these companies and pushing their hyper aggressive product development.
agreed
Groupon... overvalued will short when it goes IPO Zynga- overvalued, it is a fad and its revenue cycle will begin to show that, will shot Facebook- about right, but could easily be the next myspace. Social networking has no brand loyalty this will be a problem
Social networking bubble of 2011-2012 = Internet bubble 2000.
yea for sure...wish we could short these somehow
Yea, I think Groupon's valuation is unbelievable. Their business has literally zero barriers to entry. Look at livingsocial ...they do exactly the same thing and their deals are better (at least for my taste). For example, today they have $8 for two fandango tickets...awesome deal and they sold more than half a mill of them already (everybody goes to movies once a year, so why not save ten bucks?) What does Groupon have? Some fucking baking workshop. This is all obviously anecdotal, but my point is that flash sales will soon become incredibly competitive. And if some smaller site comes along and offers to sell the same number of deals, but taking a smaller cut...why would they pick Groupon? I also read somewhere that many businesses have actually lost money on those promotions. It's a new trend so we'll need to see some reliable data on return customers yields, right now merchandisers are just signing up because of the buzz. My prediction is that these flash sales will soon become very specialized. Instead of a bunch of random deals, you would see "manhattan bars" or "seafood dinners", and these niches can be taken by newer smaller firms.
Then again, with the amount of financing groupon raises they could just manically buy out every competitor that's threatening haha!
Here are my impressions:
Groupon - way overvalued.
Zynga - aggressively valued, but I actually have a lot of faith in the business model and founder. I think it could live up to that valuation.
Facebook- reasonable valuation
Twitter- aggressive but not crazy valuation
Linkedin- undervalued substantially
groupon is a good idea but totally overvalued. nobody cares if they are buying from groupon or a copycat. the name isnt worth much. just make ur own own coupon site. with good coupons.
How does groupon actually work? do they form relationships with these companies they are getting the special deals with?
I do think FB is overvalued, but not as bad as a lot of people think. The main difference between Myspace and FB is that FB caught on with people of all ages (thanks in part to an increase in the availability and utility of technology). Facebook could very well pull a Myspace if they drop in the development of their service, but with such a young company, I don't think that will be the case for at least another 10 years.
Many people I know loved facebook when it was for only college kids, no you have grandmother and such, and alot of people I know don't use it much. My facebook usage has declined about 90% over the past year and some change, I do use twitter alot though as do my friends. But to my point I would say it all about whats hot right now....Myspace ---> Facebook ------> Twitter -------> ??????
everyone please watch the southpark about facebook... Stan enters "the facebook" as a spoof on Tron.... it's fucking hysterical.
Eligendi non qui nostrum architecto dolor molestiae exercitationem. Eveniet modi vel nobis accusantium debitis dolores corrupti. Sed debitis corporis dolorem cumque tempore. Ex quo autem tempore unde quia. Enim sunt voluptate quae est.
Praesentium qui modi dolore odio aperiam. Ab ut quibusdam omnis omnis doloribus aut. Aspernatur cupiditate et labore placeat. Et nihil quis asperiores nostrum voluptate consequatur a rem.
Nihil dolores libero itaque sint eveniet consequatur. Maiores quam deserunt officia sint enim et fugiat. Minus maxime impedit iusto et distinctio accusamus quasi possimus. Sed omnis qui provident expedita quo. Delectus error laudantium porro voluptatum totam nisi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...