Linden Lab Worth $658-700 Million, 2009 Revenues Forecast at $100 Million - Analyst

Six years after the launch of Second Life and two years after reporting profitability from it, how much is Linden Lab worth? How does somewhere between $658-700 million sound to you? That's the opinion of NeXtUp Research, an analyst firm which recently published an extensive report on behalf of SharesPost, a new startup that handles the buying and selling of shares to a number of privately-held, pre-IPO companies. One of those companies is Linden Lab (here's their Linden page), and right now, SharesPost is listing 22 potential Linden share sellers -- and 35 potential buyers. (This after recent news that another firm had purchased Linden shares from an original investor.)

You can download the full NeXt Up report on Linden Lab from the SharesPost site after creating a free account. For a company analysis, it actually makes for interesting reading. (Even the Tea Crate Rebellion and the War of the Jessie Wall rate a mention in the company history section.) More salient to Internet business watchers, however, is the analyst's estimate of Linden's revenue and profit, with the former forecast to hit $150 million in 2011, and profit (i.e. "Net Income") to reach $35 million that same year. (See chart above.) NeXtUp uses these numbers and related virtual world business sales (such as Disney's purchase of Club Penguin for $350 million) to arrive at that half billion-plus valuation figure.

But is all this accurate?

I gave the report a pretty close read, and it's remarkably well-informed. There are some niggling errors here and there: for example, NextUp estimates Second Life has 170K Premium subscribers, but during my last interview with CEO M. Linden, last April, he mentioned the number was more like 75K. Then there's the frequent mention of "Linden Labs" plural, a common mistake. But it's not far off from my own analysis of Linden's revenue.

$700 million, it goes without saying, is an extremely high valuation. Then again, it's several orders of magnitude less than the $5 billion a Techcrunch report pegged it at in 2007. NeXtUp also did an analysis of Facebook for Sharespost (page here), and gave the social network a valuation of $3.15-$4.34 billion. Then again, that figure is for a system of 200 million monthly active users, versus Second Life's much more modest 800K. The outstanding question, of course: What if anything will the tech industry make of the valuation?

Comments

[Dusan Writer]

Hmmm....feels like a fun time to make predictions for a Linden Lab IPO:

- With such a highly engaged user community, this would be one of the first and most successful IPOs in which customers themselves bought up a significant chunk of the shares

- IPO or sale in 2012, valuation: $3.5 billion

- Philip takes the money he earns when he cashes out and bring electricity to some small island in the South Pacific, opens a meditation school, and works on creating a firewire port that will finally allow him to upload his brain.

[Adric Antfarm]

It is overvalued, but the days when they could trick a company like Time Warner with it are gone.

Not a good time for an IPO, but I would hate to see the change when/if. The default prim is now a McDonalds logo instead of wood, each IM has a banner ad...

It's great to to see in spite of their lack of focus premium is healthy. It's a good sign for the future since it takes some commitment to pay monthly for the right to also pay tier (but we do it anyway). Land is a killer but I wonder why they can't squeeze more out of XStreet given their obsession with making it more painful as of late.

Cost of Sales is expenses? No? Yes?

[Adric Antfarm]

I am shocked and glad to see premium where it is given the lack of focus Linden seems to have with it in the shadow of real estate.

The number of people who are committed to staying around and like the place enough to pay membership so they have the right to pay tier is an indicator (of a few things).

[Stroker Serpentine]

..and you STILL can't group IM or get more than 50-60 agents on a server...AMAZING!!

[Robert Graf]

After all these years Second Life is still essentially a "beta" product. Name the problem that existed a couple of years ago and it probably still exists. But they did implement voice. woohoo. As far as these growth numbers go, they seem suspect at the very least. Residents Online Now number was much higher a couple of months ago 70,000-80,000. Now it seems to hover around 50,000-60,000. Potential Investors should hold onto their wallets until the fallout from all the wonderful changes Linden Labs has implemented over the last few months play out.

[Math4TheWin]

"an order of magnitude" means a power of ten. 700 million is exactly 1 order of magnitude less than 5 billion.

But you never bother to proof-read anything you write or double-check your sources, so I can't say I'm surprised.

[Doreen Garrigus]

Second Life will _always_ be a beta product, just like the world wide web will always be a beta product. There will never be a time when you can get to where you want to go with 100% reliability, either in Second Life or on the web. There are too many connections that have to be made, too many places where some glitch can knock the whole process off track. There are too many people with a hand in what happens. It is an open system. And don't we want it that way?

[Tristin Mikazuki]

The projections are.. interesting to say the lest... real world maybe the premium accounts I wouldnt bet on the rest to be stable or half of what is said lol

[LittleLostLinden]

The concurrent numbers being down a bit lately may be due to some of the bot cleansing and camper cleansing, however, even that is shrowded in secrecy. There is still no known method for what happens to campers or bots. They can't be reported yet. Until they are, the daily numbers will always be inflated. I'm still seeing camping and bot sims everywhere I go. Does anyone know when they will really fix the bot\camping issue?

It is my true belief that they are doing what I would do in this situation. They know they can't just remove all the bots and campers in one fail swoop so they are proabbly trying to gradually phase them out at the same time they are trying to bring in new users so we don't all see a massive hit to the numbers. That is my beleif why we still are not allowed to report bots or camper sites, or bot sims disguised as camper sims.

[Troy McConaghy]

Many of the "old" premium accounts (like mine) get a weekly stipend of L$500, which works out to about $1.91 USD per week or $99 USD per year. I pay $72 USD per year for my premium account. That means Linden Lab actually loses money on the old premium accounts.

Recent premium accounts get a stipend of L$300 per week, or about $60 USD per year, so LL only makes about $12 USD per year per account from those. Accounts billed monthly or quarterly cost more, so LL will make more on those.

Let's do a quick and dirty order-of-magnitude estimate of how much LL is making from premium accounts... Suppose 20% of accounts are old premium accounts and 80% are new. (And ignore the small number accounts that get L$400 per week for simplicity.) Feel free to try different percentages or assumptions and see what happens...

Suppose there are 80,000 premium accounts total. Using my percentages, that's 16,000 old premiums and 64,000 new premiums.

LL loses about $27 USD per year per old premium account, so a total loss of $432,000 USD per year.

Let's suppose LL makes about $16 USD per year per new premium account (more than $12 to account for those billed monthly and quarterly), so a total of $1,024,000 USD per year.

The net is $1,024,000 - $432,000 = $592,000 USD per year, i.e. 6 figures, not 7 or 8.

You can plug in different percentages or different modeling assumptions, but I doubt you'll get a different order of magnitude (unless I made an error somewhere).

[rigthasrain]

interesting that the analyst see the SL revenues growing in 2009 when (of course without LL posting the land sales data) it seems that land sales are not growing. Their Nebraska offering is not out yet, so where is the new revenue coming from??

[Nexii Malthus]

Troy: You miss a very very, VERY important point from stipends. They don't buy the L$ that they give you. In fact, you act as a middle man for selling L$ out of nowhere and paying them back.

[T_S_Kimball]

I will continue to repeat this until I see otherwise [now five(!) years and counting]: LL will not IPO, and should not IPO. There are too many minuses for a company that appears (publicly) to stumble around like it has over the years.

If there's any good I see from this news, its that there *is* stock trading going on - just of private shares, not public. This is probably the better place for them to be, personally.

--TSK

[Mark C]

*** $700 million, it goes without saying, is an extremely high valuation. Then again, it's several orders of magnitude less than the $5 billion a Techcrunch report pegged it at in 2007. ***

Actually, it's less than ONE order of magnitude. An order of magnitude is a factor of ten.

[valtrex online]

What technology does Second Life ( linden lab ) use ?
What machines does linden lab use to run Second life ?
Thanks

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