Why Did Linden Lab's Sharespost Value Jump Over $100M in 2 Months? I Sense Stirrings by Major Shareholders (UPDATED)

UPDATE, 6/13: Read this response from Linden Lab CFO Bob Komin on the company's valuation versus the company's Sharespost listing.

Linden Lab's value has jumped 45% in recent months on Sharespost, a company that trades in shares of privately-held, pre-IPO companies like Linden. As Ener Hax noticed, that's an impressive jump from $232 million in March to $338 million now. After the infamous Linden Lab mass layoffs of June 2010, the company's Sharespost value lost $100M, plummeting to $271M. So the company has regained nearly all its pre-layoff value on Sharespost.

But why? I think the answer is not due to any obvious explanation:

For one thing, performance has not improved: User growth is flat, and Linden's revenue base is slowly but steadily eroding. So the value can't be going up due to that. Rod Humble took the CEO reigns around March, so the spike partly reflects shareholder confidence in him. But I doubt he alone could restore $100 million-plus of it.

If I had to guess (and I'm not an expert), I'd say some of the larger holders of Linden Lab shares are buying and/or selling their holdings, which would drive up the price. But to what end? Perhaps in preparation of selling the company? Or an upcoming announcement (partnership, IPO, etc.) that might make Linden Lab much more valuable than it currently is?  At at any rate, definitely keep an eye on that Sharespost listing, because in its tea leaves lies the future fate of Second Life.

Comments

[Cinder Roxley]

performance HAS improved though, you just can't admit it.

[Rob Knop]

By performance, he doesn't mean "how well the world performs". He means what financial types mean: how much revenue the lab is bringing in minus their costs. (And that may well have improved, if they've managed to cut other costs... although it's hard to imagine what they could do that would come close to the Lindenmageddon layoffs of a year ago.)

[Hitomi Tiponi]

With the layoffs there was a 'Is this going to the wall?' feeling - now they are hiring and positive sentiment returns. But also this is Sharepost - a crystal ball may reflect true value better.

[Hamlet Au]

Yes, Rob, exactly. But see my post from yesterday about in-world performance too. :)

[marqueA2]

No, SL operating performance has NOT improved. It seems to me to be just as laggy as ever.

[Galatea Gynoid]

Well, I'm excited about Mesh, but I doubt that's it...

When the layoffs occurred, some people thought the company was sinking fast, and the value dropped precipitously. Now it's obvious if it's sinking, it's not sinking fast, so that great a drop in value is unwarranted, and the price is adjusting accordingly to this information. I know you would expect a more gradual return, but we're talking about a very small pool of investors, not a publicly traded company with millions (or even thousands) of investors. These trends don't get smoothed out like they do on public markets.

As much fun as it might be to speculate about what new info is circulating behind the scenes as you do above, the information we already have is adequate to explain the observed behavior. Therefore, Occam would suggest eschewing any theory that postulates more, at least for now.

[Ian Wilkes]

I think you've misread this one. Sharespost lists the last completed transaction in September 2010, and completed trades are the only thing that generate a real price signal. Historically, in the absence of real trades, the site has derived a company's "value" from the listed posts to buy and sell for the company, which are incredibly deceptive, because posting a buy order in no way obligates you to follow through. I know this because I've seen decent prices offered on Sharespost and tried to sell into them, only to have the other (anonymous) party cancel their bid immediately, then re-post it later, artificially creating a false valuation for the company.

So: until you see an actual trade, the Sharespost listed valuation for LL is meaningless.

[Ener Hax]

hey there, well i have been a bit OCD at looking at the index (it makes an easy daily post for me!!!)

i think what may have happened is that they overlooked updating LL for the two months and that it has been climbing steadily

Rod has to be increasing people's confidence just with his background

this is one of so many indicators and should be seen as just that - one metric out of 100s

keep in mind that like the "real" stock market, this is all subjective and a best guess by a handful of people

the more telling thing is that SL is no longer the MySpace, someone else came along and is giving more options. will OpenSim ever be the size of SL? never as a grid, but perhaps in number of regions but it will be quiet, just like the majority of the web is powered by Apache =)

[bk linden]

Ian FTW!

"Oh i used to be disgusted
And now i try to be amused."

-Elvis Costello "Red Shoes"

I have been finding it amusing for some time to watch Linden Lab's "value" move up and down on sharespost.com, and the various reactions it generates. While it is kind of fun in the way watching a lava lamp is, I'm sorry to say they 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.

Sharespost.com is good at what they really do. They are simply a buying and selling bulletin board and currently there are not even any open offers to buy or sell our stock and no transactions have taken place since September 2010. That makes it pretty tough to take a guess at a valuation right now, much less how that might have changed since then. And their "venture-backed index" for multiple companies modeled after the Dow Jones index is a great aspiration, but until private companies have easier and more predictable valuations like public companies with high daily transaction volumes and widely available financial information for buyers and sellers the graphs may look similar but they have very little in common.

The only accurate thing you can really take away from that site for any company is the price per share paid in a transaction that has already happened. Even converting that to a company's valuation requires that you know several other things including how many shares are outstanding and whether other equity or debt holders have any special rights. None of this information is provided to them and getting the fully diluted share count wrong can really change the valuation significantly.

I recently participated in the process on sharespost.com for those wanting to purchase Facebook shares just to see how that works. The prospectus says upfront you will receive no information now or in the future about the company and that whatever information they do provide including fully diluted share count may be wrong. You have to give them credit they tell it like it is, but it didn't help me figure out their valuation or even whether the price I'd have to pay per share was reasonable.

[canary]

probably related to all the rush into bitcoin... linden mints its own space bucks, AND its liked by mainstream investors/regulators. virtual currency is all the rage. check out bitcoin man. (fyi virwox trades them for lindens)