Public Internet Company Financial Performance

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:  https://softwareequity.com/research_reports.aspx

The median TTM revenue of SEG Internet Index companies grew an impressive 27.4% in 2Q12, 41% higher than 2Q11 (Figure 18). Among SEG’s three tracking indices, companies comprising our Internet Index have the highest median TTM revenue ($394.7 million), making their median revenue growth in 2Q12 all the more impressive.

By comparison, public software companies had median TTM revenue of $365.1 million in 2Q12, but a considerably lower TTM revenue growth rate of 15.5%.

Of the 19 public Internet companies with TTM revenue of $1 billion or more, nearly two-thirds grew TTM revenue by more than 20% in 2Q12. Q2’s top Internet performers spanned an array of Internet categories, including eCommerce (Amazon, eBay), Search (Google, Baidu), Gaming (Tencent, Zynga), Travel (Priceline, Expedia) Social Networks (Facebook) and Lead Gen (Groupon).

Nevertheless, growth disparities among public Internet providers abounded in Q2; the SEG Internet index has the widest variance of revenue growth rates among our three tracking indices (Figure 19). Five public Internet companies achieved TTM revenue growth at or above 100% in 2Q12, including Groupon (232.2%), Qihoo (201.7%), Youku (123%), Zillow (113.3%), and LinkedIn (111.1%).

At the other end of the spectrum, ten SEG Internet providers posted negative revenue growth, led by Yahoo (-16.4%), Mecox (-9.0%), eHealth (-7.3%) and AOL (-5.2).

As for profitability, the median EBITDA margin of public Internet companies continued to decline in 2Q12, closing the quarter at 13.5%, after reaching a historic high in 1Q11 of 16.8%. The declining profitability is primarily attributable to higher sales and marketing expenses to drive market adoption. It was a strategy that worked, for some: Jive Software is a good example, which publicly listed in 2011, posted 64% TTM revenue growth, but a -45% EBITDA margin in 2Q12.

Nevertheless, the SEG Internet Index includes a good number of companies that are highly profitable. One out of eight public Internet companies achieved EBITDA margins of 40% or greater, including ChangYou.com (65.7%), Baidu (58.5%), Facebook (53.4%), Netease (50.2%) and TripAdvisor (45.6%).

Though EBITDA margins may have declined, the surge in revenue enabled many Internet companies to boost their cash reserves. By the close of the second quarter, the median Cash & Equivalents of companies comprising the SEG Internet Index was $155.4M, up 36% from 2Q11 (Figure 18).

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