In less than a year, according to a new report from financial services advisory firm Candlestick, Linden Lab's estimated market capitalization has decreased from $288-334 million (in the Summer of 2011) to a current cap of $186-232 million, for a decline of $102 million. This report was written for Sharespost, a company that trades in shares of privately-held, pre-IPO companies like Linden. Ener Hax has a more extended summary and copy on her blog.
The decline in market cap estimate is based on a number of factors cited by Candlestick -- an aging existing userbase, matched to growth of new users from developing nations who are difficult to monetize, a slowing in user growth, and decreasing visibility of SL in general. (Candlestick notes Nielsen ratings dropping SL from its list of top ten PC games, which I believe is referencing this NWN post.)
The report is an interesting and worthwhile read, though I'm a bit skeptical on some of the key assumptions:
To name one, I don't believe Linden Lab's revenue has exceeded $100 million, at least not in the last 2-3 years. Indeed, when I wrote this post analyzing the company's declining revenue last year, I based it on the company's own 2010 statement that it had had "revenues exceeding $75 million a year." (SL founder Philip Rosedale said something similar in 2011.) So Candlestick is more bullish on Linden Lab than Linden Lab is on Linden Lab. But with a steady decline in private estate islands in SL since then (which I'll be discussing more in a future post), it's difficult to see how the revenue has increased.
Last year, when I noted another Sharespost-backed report, Linden Lab CFO Bob Komin came by this blog and wrote this, which is worth considering in relation to this new report:
While it is kind of fun in the way watching a lava lamp is, I'm sorry to say they [Sharespost] really have no basis for the valuation of the company and especially how it changes over time in what they report. They and their 'research' providers receive no information beyond what we publicly publish in the blogs so the valuation numbers are just as virtual as Second Life.
And now that the company publishes even less information, reports like this will necessarily involve a bit more guess work. But again, there are other ways to gauge the overall economic health of Second Life; more on that soon.