Social Gaming ready to Pop... Farmville worth more than EA?

Okay so the latest bubble sign. According to the WSJ, hardly the hype meister generals, Farmville creator Zynga could be worth up to $9bn some key words from the WSJ:

The discussions are the latest sign of the investor frenzy around a small class of large, fast-growing Web start-ups focused on the consumer market that have yet to go public.

and

Although valuations of the most successful Internet start-ups are getting pricey [...] part of Zynga's appeal is that it has tapped into a lucrative method of making money online.

Umm does that really stand up? Well the pricey bit certainly does.

Lets think about a company that has got into making money on-line, the sort of company maybe that makes a range of mobile games for iPhone, Android, Blackberry, Windows Mobile, Palm Pre and Symbian and indeed has a history of games on mobile platforms. How about a company that has already got a pretty extensive multi-player online experience and indeed had a (failed) "social" online game and could choose to re-enter the market in a myriad of ways.

So Electronic Arts which according to the open market is worth $6bn, in other words its worth less than the low end estimate on Zynga. So what is the barrier to entry for EA, one of the world's largest games developers to take one of its internationally renowned franchises (e.g. Sim City) and develop a lightweight "social" game ala Zynga for delivery via Facebook. Much, much lower than the barrier the other way around for Zynga to develop the sort of real-time sports and action games that EA specialise in.

Again as before its more than possible I'm calling this one wrong, but its hard to imagine at this stage that EA with its new digital strategy couldn't decide to go head to head and leverage its much greater IP, brand identity and established mobile offerings. Zynga bigger than EA and investors desperate to invest and hassling to get in? What was that EA stock ticker again....

Technorati Tags: SOA, Service Architecture

Social Business when does it pop?

Okay so LinkedIn is leading the social business IPO charge with various numbers being touted as a valuation from its current off market evaluation of $2.5bn (on $161m revenues and $10m profit in 9 months) to the proposed IPO. Revenue is more than doubling over 2009, but costs are nearly matching the same level of growth which delivers the minimal actual profit. The forecast isn't exactly huge either with them predicting slow downs, not this could be CYA words but there are some good points in there.

So what would $2.5bn as a valuation make LinkedIn equivalent to in the "real world"? Well how about Easyjet? Easyjet are a low cost airline who are part of the revolution in the cost of short haul travel in europe.

Assuming LinkedIn's profit/revenue growth continues then lets say we get $210m revenue and $15m profit. So how does Easyjet stack up? Well from one perspective not well.

Revenue at EasyJet was £2.97bn so almost 40 times (1.6x $) , Profit was £121.3m or about 12x (EBITA is £274m). So bang for buck is arguably better with LinkedIn but what does this profitability mean for EasyJet's valuation? £1.7bn which is about $2.7bn or probably less than LinkedIn will IPO for.

Ah but LinkedIn has 90m users, although few use it regularly and some accounts might be duplicates... as opposed to Easyjet who have "only" 50m passengers per year.

Now there are lots of other bits that drive valuations but haven't we seen this before in terms of massive valuations for companies where profitability was a secondary element? I like LinkedIn, I use LinkedIn and I wish them all the luck in the world. I can even see their business model around job hunting and head hunting making a lot of sense and them really getting a decent set of revenue from it.

But are they worth the same as a well run and profitable airline? The answer is of course that they are worth what people will pay for them which means invest at the start of the bubble but don't forget that its a bubble.

Technorati Tags: SOA, Service Architecture