does SharesPost mean anything? at i live in science land

does SharesPost mean anything?

i have blogged a few times oh the “value” of Linden Lab in SharesPost but what does that number mean? this is not like trading a public company’s stock

so how can you tell what it means?

first off, since there are several companies listed, you can use those as barometers. it’s interesting to see that LL is a significantly smaller player than the others just in their overall value

we all know facebook is growing and SharesPost’s evaluation reflects that. CNET said that SharesPost’s information “is valuable and interesting data, and gives a pretty good insight into the realistic value of many private tech companies.”

TechCrunch looked at Facebook and LinkedIn and compared what they thought with what SharesPost indicated. they found that the valuation for Facebook was pretty close but were not sure how solid the number was for LinkedIn

SharesPost has nothing to gain by portraying the value of companies as better or worse than they really are. they don’t even collect any sort of commission on sales made based on their data

the only people that can buy these shares have to be accredited under the Securities and Exchange Commission’s regulation D. these are not just regular investors. shares do get a commissions of $2,500 on both the buyer and the seller collected by US Bank. i would imagine this means that the buyers are pretty savvy

so what does it mean that Linden Lab, as Wizard put it, has lost 35% of its value since March? i don’t know but it could help explain some of LL’s actions this year

Written by Ener Hax

September 6th, 2010 at 1:43 am

Posted in second life

Tagged with sharespost

Normally, the price of a company is based upon two factors: How large are the yearly earnings, and what are the prospects of those earnings to grow or decline in the years to come. The factor between the yearly earnings and the price of a company is normally referred to as the P/E factor. A P/E around 7-10 is I think quite normal for a going business. Anything above that and you expect a healthy growth in the future. Internet companies have been sold for very large P/E factors, 20-30 or even more.

LL does not publish its revenues and earnings, but we can make a kind of guess. Calculating tier and land sale income, I’d say the yearly income is in the USD100 mill range (give or take a few). If they manage to earn 10% of that, it means they have an earning of US10mill/year. A price of 270 mill is then actually a quite high P/E, but the drop means that the analysts have a declining faith in the future growth of the company.

This is all speculation of cource, if LL has a 25% profit margin then the P/E is just around 10, and no future growth is expected.

Cristopher Lefavre

6 Sep 10 at 3:57 am

christopher’s analysis above is helpful, but a bit deceptive in his use of terms. people often confuse the terms *income* and *revenue*. usually, revenue is gross sales. usually, income is revenue less costs. i think christopher is using *earnings* to mean *income*. when he says “yearly income is in the USD100 mill range” i think he means *yearly revenue*. he says “if they earn 10% of that..”. he means if the net income (or profit margin) is 10% of $100 mill gross revenues. 10% is a healthy net income anywhere. I would agree that the drop probably means the analysts have less faith in the future growth of Linden Lab (private sim counts are dropping about 250 sims a month). i suspect there is also skepticism about LL’s profitability.

Wizard Gynoid

6 Sep 10 at 11:56 am

Wizard, you are quite right when it comes to explain the terms I should have used. I used the term “earning” for net income, because that is the word used in P/E.

I was a bit wrong when it came to expected P/E: The average P/E rate for the last century is 14, although it reached a mean of more than 40 before the bubble burst in 1999. For a technological innovative company like LL with a lot of potential, one would expect a high P/E if the market has faith in the business.

I am a bit surprised by the numbers either way: If they actually have a profit margin larger than 10% that would be surprising in itself. If it’s far less then for LL to be valued at 270MUS its still a fairly high P/E. Well, we may know the numbers some day if they go public of is purchased.

6 Sep 10 at 2:04 pm

if someone tries to tell you what LL’s revenue is, they are exaggerating. i have only found guestimates. Income is anyone’s guess, as we don’t have any idea what LL’s costs are. to complicate things, we don’t know what kind of re-investment they are doing with their income, if any. we know they bought Avatars United and similar things. those purchases would cut into Cash Flow and would not be subtracted from Net Income because they are capital purchases.

6 Sep 10 at 5:42 pm

god point on LL buying Avatars United and XstreetSoL and who knows what other third party stuff they are buying, including buying out other companies

their hardware costs must be astronomical! maintaining all the inventory and all of that must be insane (i say purge dead accounts and limit max inventory items – charge some nominal fee for increments in excess of some number, like $1 a month for every 5,000 items over 30k)

i dunno, it’s a wicked complicated beast that is easy to backseat drive!