June 16, 2008
Widget maker RockYou who claims a reach of nearly 90 million users per month has raised another round of funding at a handsome valuation estimated at around $400 million. With a similar widget solution used primarily as way to creatively display and share images, audio, and video within a social network, Slide, a company founded by startup second-timer and Pay-Pal co-founder Max Levchin recently raised a round at $500 million. It makes sense that platforms with this type of reach should be worth a lot of money but from a traditional financial standpoint these valuations are way out there. RockYou is rumored to be on track for about $10 million dollars in 2008 revenue which sets the revenue-to-value multiple at 40x in comparison to other Software as a Service (Saas) companies being valued at closer to 10x fiscal 2008 revenue.
In search of companies with compelling technological solutions and a wide social network footprint it appears that investors are driving the price of social widget companies through the roof. In this case, unless there’s a potential acquisition negotiation in process that I don’t know about, it seems that a 30x additional revenue multiple premium is being created from future expectations on the potential of 90 million monthly uses. Although I don’t know the current estimations, I would assume that 90 million monthly users is still pretty insignificant in comparison to the total number of monthly worldwide social network users. If by chance it’s less than 1% of the market then I guess there is some pretty significant opportunity for growth here from top market contenders.
Going back to dot-com-era valuations which were in many cases based on exposure and activity, not revenue or profit, RockYou is currently supporting an enterprise value of $4.60/monthly-user (and Slide an EV of $7.80/monthly-user). Who would have thought that each time I load a MySpace profile and interact with a RockYou supported widget (by hitting play or clicking to answer a question) that I’m putting five bucks into the pockets of the RockYou team. Pretty sweet deal. Keep it up guys, other SaaS companies I know of need more of these great funding model comparables. I wonder what a company doing twice the annual revenue with 600 million monthly users is worth under this model? By revenue alone $800 million, or by exposure $3.7 billion.