Zynga, Facebook, Groupon Colossal Valuations!

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

http://leverageacademy.com/blog/2011/03/01/zynga-f...

Comments (18)

Mar 1, 2011

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
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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
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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
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Before you let your top back, get your bread up
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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
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Weezy Baby here, y'all prenatal
I just get the beat and murk it out like Frado
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I keep a red flag case I get penalized
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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
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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

Mar 1, 2011

I want some of whatever you're on dude.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Mar 1, 2011

PM me

Mar 1, 2011

groupon valuation is so overvalued. Nobody in their right minds should pay 15 b for a local flash sale WEBSITE

Mar 1, 2011
Ricqles:

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.

You give me a gift? BAM Thank you note! You invite me somewhere? POW RSVP! You do me a favor? WHAM Favor returned! Do not test my politeness.

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Mar 1, 2011

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.

Mar 1, 2011

It's the VC's that are getting ancy for a liquidity exit with these companies and pushing their hyper aggressive product development.

Mar 1, 2011

agreed

Mar 1, 2011

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.

Mar 1, 2011

yea for sure...wish we could short these somehow

Mar 2, 2011

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!

Mar 2, 2011

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

Mar 3, 2011

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.

Mar 1, 2011

How does groupon actually work? do they form relationships with these companies they are getting the special deals with?

You give me a gift? BAM Thank you note! You invite me somewhere? POW RSVP! You do me a favor? WHAM Favor returned! Do not test my politeness.

Mar 4, 2011

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.

Mar 1, 2011

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 -------> ??????

You give me a gift? BAM Thank you note! You invite me somewhere? POW RSVP! You do me a favor? WHAM Favor returned! Do not test my politeness.

Mar 2, 2011

everyone please watch the southpark about facebook... Stan enters "the facebook" as a spoof on Tron.... it's fucking hysterical.

Mar 1, 2011
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