Thursday, September 24, 2015

"Private companies are overvalued OR public companies are undervalued"

From Mahesh VC:
...The public data is fun to look at so I went ahead and compiled my own index of consumer internet companies across the following categories: Social, Marketplaces, Ecommerce, Digital Media / Gaming, and Travel.  For each, I plotted the 2016 enterprise value / revenue multiple. 
Note: Most of these companies are not valued solely based on a multiple of forward revenue.  This is simply the closest metric used for most private valuation rounds.  Other important metrics take into account growth rates, operating margins and free cash flow characteristics.  I also focused on US companies for the most part.  
As you can see, almost no companies achieve higher than a 10x forward revenue multiple save for Facebook.  Even LinkedIn and Twitter only get 5-6x.  Quality marketplaces also tend to get premium multiples with Lending Club and Just-Eat leading the pack around 8x forward revenue.  Most other marketplaces center around the 3-6x range with some stragglers like Angie’s List and  Ecommerce companies on the other hand trade completely differently.  Given the lower margins and other challenging business characteristics, ecommerce businesses are worth 0.5x-2.0x forward revenue.  FitBit is doing it’s own thing right now similar to how GoPro behaved post-IPO, though the latter has since come down to more reasonable levels.  The Digital Media / Gaming bucket has a nice variety of various business models and valuations tend to be across the board in the 1.0-6.0x range.  Dominant industry players with monopolistic tendencies seem to get much higher multiples (Google, Activision, EA), and the same is true for travel (Priceline, TripAdvisor)....

HT: Abnormal Returns