Internet companies are notoriously difficult to value, as investors learned in the dot-com crash 11 years ago. But since the “Web 2.0” companies fueling this year’s Internet IPOs rely upon having a reliable group of engaged users, they do offer at least one telling metric: the amount of money each user is worth. That’s why venture capitalists evaluating such businesses in their early stages often examine how much revenue a company is generating per user.
Bijan Sabet, a venture capitalist at Spark Capital, which has invested in several Internet companies, including Twitter, FourSquare, and Tumblr, says his firm often considers $2 of annual revenue per user to be an important target threshold for startups. By that measure, several of today’s new Web companies show genuine promise, as the chart below indicates.
Footnotes: 1.) The figure for Google users refers to the number of unique monthly search users, which doesn’t reflect all the people that see its ads and use its services. 2.) The figure for Groupon users refers to reported “cumulative customers” in 2010. 3.) The figure for active Zynga users refers to “monthly unique users” from October through December 2010. 4.) The figure for active Twitter users refers to a recent report from Business Insider that found that only 21 million Twitter users follow 32 or more accounts. Twitter considers an “active” user to be someone who is following 30 accounts, with a third of those accounts following back. 5.) Revenue figures for Facebook and Twitter are based on estimates from eMarketer, a research firm. 6.) Revenue figures for Zynga and Groupon come from their IPO filings with the Securities and Exchange Commission.
Don’t settle for half the story.
Get paywall-free access to technology news for the here and now.