Public Internet Company Financial Performance

…growth disparities among public Internet providers abounded in Q3.

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

SEG Internet Index companies grew median TTM revenue an impressive 24.0% in 3Q12, up from 20.8% 3Q11 (Figure 19).  Among SEG’s three tracking indices, companies comprising our Internet Index have the highest median TTM revenue ($407.6 million), making their median revenue growth in 3Q12 all the more impressive.  By comparison, public software companies had median TTM revenue of $388.5 million in 3Q12, but a lower TTM revenue growth rate of 13.2%.

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 3Q12.  Q3’s top Internet performers spanned an array of Internet categories, including eCommerce (Amazon, eBay), Ad Tech & Lead Gen (Groupon, Baidu), Travel (Priceline), Content & Media (Netflix), and Services (VistaPrint).

Nevertheless, growth disparities among public Internet providers abounded in Q3; the SEG Internet index has the widest variance of revenue growth rates among our three tracking indices.  Four public Internet companies grew TTM revenue by greater than 100% in 3Q12, including Qihoo (169.9%), Groupon (117.6%), Youku (107.3%) and LinkedIn (101.9%).  But thirteen SEG Internet providers posted negative revenue growth, led by Mecox (-17.3%), WebMD (-12.4%), Yahoo! (-10.6%) and NCSoft (-9.8%).

As for profitability, the median EBITDA margin of public Internet companies continued to decline in 3Q12, closing the quarter at 13.2%, 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: Angie’s List, which publicly listed in 2011, posted 69.7% TTM revenue growth, but a -45.3% EBITDA margin in 3Q12.

Nevertheless, the SEG Internet Index included a fair number of companies that are highly profitable in 3Q12.  One out of nine public Internet companies achieved EBITDA margins of 40% or greater, including Giant Interactive (65.2%), ChangYou.com (64.7%), Baidu (57.3%), VeriSign (54.6%) and Netease (49.6%).

Q3’s YoY increase in TTM revenue growth appeared to offset the relatively modest decline in EBITDA margins, enabling many Internet companies to boost their cash reserves.  By the close of the third quarter, the median Cash & Equivalents of companies comprising the SEG Internet Index was $140.9M, up from $133.5M in 3Q11 (Figure 19).

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