User worth: Public vs. Private

Hav­ing looked at how pub­lic mar­ket value users, as a por­tion of over­all val­u­a­tion, it might now be inter­est­ing to see if the model is sim­i­lar when it comes to pri­vately held  social media com­pa­nies like Face­book, Twit­ter, and Foursquare.

Pri­vately held com­pa­nies numbers

For this exer­cise, I focused on the three largest pri­vately held social media prop­er­ties. This was largely to ensure that the com­pa­nies I’m com­par­ing are closer to matu­rity (and thus some­what more sim­i­lar to pub­licly traded ones) than other com­pa­nies one could look at.

I’ve also decided to focus on the same num­bers as I did in the pre­vi­ous post to ensure some level of con­sis­tency. The data was pulled from pub­lic sources.

Look­ing at this data, it may be clear that we are deal­ing with 3 com­pa­nies at dif­fer­ent lev­els of rev­enue maturity.

If the rev­enue projects for Face­book are cor­rect, the busi­ness may be at a point where it is extract­ing more value per user across a wider base of users than some pub­licly traded com­pa­nies (or com­pa­nies that have filed to go pub­lic). This could make for an excit­ing IPO when the com­pany does decide to go public.

Twit­ter and Foursquare, on the other hand, are still work­ing on a model that is early in terms of rev­enue gen­er­a­tions. The two com­pa­nies are still work­ing on fig­ur­ing out how to turn their prod­ucts into money-generating offer­ings and have yet to really turn on their rev­enue engines.

Com­par­ing to pub­licly traded companies

The data becomes a lot more inter­est­ing when you put it next to sim­i­lar data for pub­licly held (or soon to IPO) companies:

What is most inter­est­ing here is is that pub­licly held com­pa­nies seem to put a higher pre­mium on per user val­u­a­tion and aver­age rev­enue per user.

The later is easy to expect (one would assume that, as a com­pany matures, it is able to attract a higher amount of dol­lars per user) but the user val­u­a­tion is inter­est­ing, at least to me, because I would have expected it to be more con­stant from one fund­ing event to another. It seems that pri­vate investors see a lower life­time value on a user that pub­lic ones (in facts, the num­ber almost dou­bles from pri­vate to pub­lic markets).

When I first ran the num­bers, I thought I would end up with a higher val­u­a­tion on the front end (lower rev­enue but still strong val­u­a­tions) but it seems that pri­vate investors smartly look to other fac­tors than just users. How­ever, the data may also serve as a note of cau­tion to investors in pub­lic com­pa­nies: focus on the rev­enue and a company’s abil­ity on deriv­ing good rev­enue from its user base and spend less time think­ing about the over­all num­ber of users.

After all, which might be bet­ter to you: a com­pany that get $10 per user on 10 mil­lion users or one that gets $1 per user on 99 mil­lion users?

I know which one I’d bet on. What about you?