Linden Lab Market Capitalization Decreases $102 Million from 2011, According to Analyst Estimate

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.

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Comments

[Pussycat Catnap]

This is one moment where one has to be very glad LLs is privately held.

If it were a publicly traded company and this news came out:

"Hey guys, our faked up hype about X is now new faked down hype about X" the stock market would be selling it off to a value of 0 in 30 seconds flat... and even with its profitable state and relatively stable user base, they'd be forced to close up shop tomorrow.

Stocks and valuations like this are mostly Voodoo Economics, driven by people flipping over Tarot cards and calling the psychic network...

One only has to look at Facebook over the last two weeks to see that stocks and stock markets are just a scam for the 1% to exploit the 15% who otherwise would be more protected against them from also being well-off.

Having been unable to trod over the 'mercantile classes' the way they can over the sufferahs, the stock market and hype / paranoia cycles like this give the 1% the weapon to exploit the exploiter class.

LLs being privately held means it can -mostly- look at this, shrug, and go back to work... mostly, but not fully - as its private owners are still folks subject to the same 'OMG!!!' paranoia as anyone else.

[Arcadia Codesmith]

Subjective valuation cat is subjective.

[Wizard Gynoid]

On May 25th when Ener Hax reported on this in her blog http://iliveisl.com/linden-lab-research-update-slowing-growth/ I observed that the reported income of $100 million was highly suspect as it didn't agree with the Linden's own pronouncements. I also commented that income couldn't be increasing because sim counts were decreasing. And then I went on to joke that BK Linden probably wouldn't be pointing out these mistakes. All these points you mirror above.

[Wizard Gynoid]

hehe. i misspoke. meaning to say reported "revenues" of $100 million. mea culpa.

[Wolf Bginski]

The Facebook deal was a wild overvaluation by a bank. That bank had all the info about Facebook that none of us have about LL.

Who can we trust to get it right?

[Arcadia Codesmith]

Trust the entity that's not trying to sell you anything.

[Ann Otoole InSL]

maybe LL needs to hire real programmers to fix the marketplace and stop throwing untested code into production for the fun of the griefers.

[shockwave yareach]

>22,754 private sims in existance.

58.4% of Private Estate regions are Full Regions, 41.0% Homesteads & 0.7% Openspaces

295$ a piece per month for .584*22754 makes 47.0Million in revenue annually.
125$ a piece per month for .410*22754 makes 14.0Million in revenue annually.
A generous guess of 1/2 occupancy for mainland 7113 sims at 195$ a month gives 8.3Million in revenue annually.

Land alone is 69.3Million

premium income: unknown
Upload income: unknown
L buy/sell income: unknown

I can see hitting the 103Million mark if they make a LOT of money on the L transactions. I know they make some, but 33Million worth? Not sure about that.

[Pussycat Catnap]

"Who can we trust to get it right?"

None of them.

The whole point of it is to rob from the upper middle class and upper class to feed the 1%, just as the rob from those of us in the working and middle class.

They can't as easily take from those classes with a gun or police nightstick, so they play polytricks with them instead.

The entire thing is a scam to exploit.

[Ener Hax]

imo, the only insight into LL's revenue is via Tyche Shepherd's numbers as mentioned by shockwave

LL does make good money on the exchange plus think of all the money sitting in user accounts - LL can leverage that money just like American Express does with their "float" of many millions in uncashed traveler's cheques. how much is in the LL "float" - not enough to make up that 30 million but they can at least make interest on it and borrow against it

Second Life has peaked and will stay very niche just like my beloved OpenSim community

both attract people that want more than a Farmville experience and that group is relatively small (but making $70-100 million is still great money!)

great post Hamlet and certainly food for thought BUT it's not the end of SL by any means

[Archangel Mortenwold]

Linden lab is pricing itself out of business and it's too stupid to care. It's a lousy business practice to maintain high fees for product and service in a time of decreased demand. Any economist worth his or her salt will tell you that.

The last time I checked it was $1,000 USD to buy a new provate full-prim estate directly from Linden Lab, and an additional $295 a month to keep it. You get 65,536 square meters with 15,000 prim limit. Compare that to InWorldz, which charges $75 a month for a region with the same square footage and up to 45,000 prims. Although no competing grids come close to rivaling Linden Lab for user activity, that LL keeps losing estate owners to high tier prices should be a wakeup call. If they want to survive, they have to lower tier and initial purchase price to something well within reason, and increase what people get for their money. Otherwise the flight out of SL is just going to continue unabated.