The implied value of Facebook leapt by 50 per cent in the past five months, while the value of Twitter more than doubled as secondary market investors bid up shares of Silicon Valley’s fastest growing private companies.
Overall, the value of the top 11 private internet companies has risen by 54 per cent since June 30, against a 19 per cent gain in the S&P 500 media index, the nearest public market equivalent, according to data from Nyppex, a securities firm that tracks the private markets.
The valuations, based on the price private investors are willing to pay for small stakes on the secondary market, highlight the frenzied state of technology investing today, as institutional investors and venture capitalists seek to gain exposure to a new generation of consumer internet companies.
“Investors are betting that social media is the future,” said Laurence Allen, managing member of Nyppex. “For the last three years people have been saying people are overpaying in the sector, and the companies are just charging forward.”
In the past five months, the implied valuation of Facebook, the social networking site, has risen from $26.4bn to as much as $41.2bn. Twitter, the instant messaging service, has more than doubled in value during that time to $3.7bn. The value of Groupon more than trebled to $4.8bn after Google sought to acquire the coupons site.
But some companies have seen their valuations decline as they fall out of favour with fickle internet users. Digg, the user-generated review site, worth $170m earlier in the year, is now valued at just $102m. The value of Zynga, the social games company, declined 8.2 per cent, from $4.8bn to $4.4bn.
“These are some of the fastest growing companies in history,” said Hans Swildens, founder of Industry Ventures, a secondary market investor.
Though the companies do not disclose financial figures, people close to Facebook say its revenues may reach $2bn this year. People familiar with Groupon say its revenues are growing exponentially and could top $2bn next year, while Zynga’s revenues are reckoned at $600m.
“External attempts to forecast revenue or value the company are fundamentally speculative and should be treated as such,” said Jonny Thaw, Facebook spokesman.
The majority of the secondary market trades are handled privately, though private stock brokerage firms such as SecondMarket and SharesPost are playing more prominent roles.
As the public markets remain weak, the secondary market for private company stocks looks set to continue booming.
“If there are a lot of IPOs it could slow down,” said Mr Swildens. “But if the IPO market doesn’t come back strong you’re going to see this market compounding at 40 per cent a year for the next few years.”