Public Internet Company Market Valuations

The median EV/Revenue multiple for the 87 public companies comprising the SEG Internet Index was 2.3x in 2Q12, the same as in Q1, but down 30% YoY from 2Q11’s 3.2x (Figure 18). In contrast to the YoY decline in the broader index, Internet companies with revenue under $100 million saw their median EV/Revenue multiples climb 121% over the past year (Figure 20).

Investors clearly favored public Internet companies with above average TTM revenue growth. As testament, companies in the SEG Internet Index with TTM revenue growth rates above 40% were rewarded with a median 5.3x EV/Revenue multiple, while those with negative TTM revenue growth rates had a median market valuation of 1.0x (Figure 21).

Investors found unprofitable but rapidly growing public Internet companies to be as appealing as their SaaS brethren. Internet providers with negative EBITDA margins at the close of 2Q12 had a whopping median EV/Revenue multiple of 4.4x, thanks to a stellar median TTM revenue growth rate of 67.4% (Figure 22).

But unlike SaaS investors who seemed indifferent to profitability (Figure 16), Internet investors paid great attention to the bottom line in 2Q12. Public Internet companies with EBITDA margins greater than 40% in 2Q12 were rewarded with a premium median market valuation of 8.7x, while those with 0% – 10% EBITDA margins were punished with a median 1.0x EV/Revenue multiple (Figure 22).


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