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.
|Valuation (in billions)||$70||$8||$0.6|
|Number of users (in millions)||712.4||400||10|
|Revenue (in millions)||$4050||$150||$5|
|Per user valuation||$98.26||$20||$30|
|Average Revenue Per User (ARPU)||$5.68||$0.375||$0.5|
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:
|Public Companies Average||Private Companies Average||Overall Average|
|Market cap (in billions)||$12.58||$26.2||$19.39|
|# of users (in millions)||116.8||374.13||245.465|
|Revenue (in millions)||$464.56||$1402||$933|
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?