How Much Is a User Worth?

Internet companies love to tout how many users they have, but how much is a user actually worth? Companies have varying business models, and a user for one is not worth the same for someone with a weaker business model. Internet companies are also interesting in that many remain unprofitable till late in their life.

Let's look at some online-based companies' average revenue per user and compare it with their market value per user.

Company

Monthly Users (Millions)

Market Cap (Millions)

Market Value Per User

Average Revenue Per User

Amazon.com (Nasdaq: AMZN  ) 100 $111,000 $1,110.00 $543.26
Groupon 37 $2,902 $78.43 $55.38
Google 1,000 $221,934 $221.93 $43.16
E Commerce China Dangdang (NYSE: DANG  ) 23 $400 $17.39 $30.43
TripAdvisor 54 $4,846 $89.74 $12.96
Baidu (Nasdaq: BIDU  ) 340 $40,432 $118.92 $8.50
Yahoo! 610 $17,674 $28.97 $8.16
LinkedIn 106 $11,110 $104.81 $6.82
Zynga 192 $2,484 $12.94 $6.62
Facebook (Nasdaq: FB  ) 960 $41,581 $43.31 $4.51
Renren (NYSE: RENN  ) 38 $1,520 $40.00 $3.68
Zillow 37 $1,119 $30.24 $2.43
Yelp 78 $1,192 $15.28 $1.37

Sources: Company reports, S&P CapitalIQ, Google Ad Planner.

Looking at numbers like this can give you hints at whether a company is overvalued or undervalued. Groupon came public with a market value per user of $465, and on the first day of trading, the market value per user rose to $605.

Without getting into Groupon's accounting -- which is a large issue in and of itself -- was Groupon really worth 50% of the value that Amazon is valued at per user, with an ARPU only a fraction of Amazon's?

Other recent IPOs of Internet companies have come at sky-high valuations, and we've seen how those have progressed.

  • Facebook came public with a market value per user of $116 while revenue per user was just around $5. Shares are down 50%.
  • Zynga came public with a market value per user of $53 while revenue per user was just $7.45. Shares are down 65%.

Calculating market value per user/ARPU (same thing as a price-to-sales calculation) can offer suggestions of what is priced at a high level.

For instance, LinkedIn trades at a price-to-sales ratio (P/S) of 15.4, Zillow at 12.4, and Yelp at 11.1.Baidu trades at a P/S of 14 and RenRen of 11. At the very least, the latter two companies have the ramp-up that comes with China's joining of the Internet economy.

In that context, E Commerce China Dangdang looks downright cheap at a P/S of less than 2 (the same as Zynga). Motley Fool analyst Brian Stoffel has been keen on the "Amazon of China," as Dangdang is sometimes referred to. Check out his take on the company.

Foolish bottom line
Internet companies are a hot investment area for a reason. Companies can grow from nothing to behemoths in just a few years. Want to learn more? If Internet stocks have you hooked, check out our new premium reports on some of the hottest companies in the sector: Amazon, Baidu, Facebook, and Zynga. Along with a comprehensive report, you'll receive regular updates with our analysts' insightful opinions of the stock for an entire year.

Dan Dzombak owns shares of Vodafone Group. Like his Facebook page to follow his investing articles. The Motley Fool owns shares of Baidu.com, Amazon.com, TripAdvisor, Zillow, and LinkedIn. Motley Fool newsletter services have recommended buying shares of Amazon.com, Baidu.com, Zillow, LinkedIn, Google, Facebook, and TripAdvisor. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

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  • Report this Comment On August 28, 2012, at 3:32 PM, pondee619 wrote:

    Just because Amazon and FaceBook are on the internet, is fair to compare the two together? Amazon is a retailor, selling things to people who visit the site to buy things. FaceBook is a billboard displaying ads to people who visit the site to chat with friends. (Does anyone pay ANY attention to those ads?)

    Amazon's intention is to sell things and make money in the process, the public's intention when they visit Amazon is to spend money on something they want. Is that true with FaceBook?

  • Report this Comment On September 03, 2012, at 1:46 AM, lakerz wrote:

    Nice Article. Could you also post operational expense per user? That would give even better idea about this companies.

  • Report this Comment On May 23, 2014, at 11:19 AM, LyleNYC wrote:

    Has anyone seen a refresh of this data with recent numbers?

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