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Did Meetup Beat Facebook to Profitability?

In the past two days there have been about 2,200 blogs and articles about Facebook achieving cash flow break even and Meetup achieving profitability.  The Facebook revelation came from a blog post by Mark Zuckerberg and the Meetup news came from a set of shareholder documents leaked to the team at TechCrunch.  Since 1,300 other people have already commented on the Facebook news, I thought I would spend a little time dissecting the Meetup numbers.  I won’t comment on the ethics of whoever leaked the documents or why TechCrunch seems to be the destination of choice for confidential information from technology startups (remember the infamous leaked Twitter documents?)

TechCrunch’s Robin Wauters does a good job dissecting the information:

Meetup , a web service that enables people to organize and manage real life get-togethers, has proven to be a popular tool that people are willing to pay for. TechCrunch has obtained a slide deck that the company used for an August 2009 shareholder update, revealing its current financial situation and past revenue forecasts. The document shows the New York-based company is performing well, having reported its first (mildly) profitable month last July.

Financial results actually fell short of forecasts put forward last year, when Meetup aimed for 50% growth in both meetups and revenues by this Summer. Despite the fact that growth was actually more like 35-40% over 2008 in its main metrics, Meetup (unexpectedly) hit profitability last July on net income of $30,000.

The Meetup team is to be sincerely congratulated on these results.  They have created and scaled a service that professional and amateur meeting organizers find useful and valuable enough to pay real money for — no mean feat in today’s world of free and freemium businesses.  It’s interesting to see how Meetup’s business has developed over the past few years.

Meetup has had solid revenue growth.  It’s nice to see the chart move up and to the right each quarter:

 meetup 1

The documents also provide a snapshot of some key July 2009 metrics:

meetup 2

A couple of interesting points.  Revenue was up 39% year over year driven by what appears to almost a lock step increase in Successful Meeting Groups (aka SMUGS).  The $166K improvement in net income was due to higher revenues and expenses growing at a significantly slower rate than revenues.  The annualized revenue per employee metric shows an average 20% increase year over year.  Basically the employees were able to deliver a lot more revenue in a much more productive manner in 2009 than 2008.  The average monthly revenue per SMUG is unusual, it’s $28/month/SMUG and was basically flat year over year.  With 27,000+ customers there is actually a lot of variability in monthly revenues.  Not all SMUGs only average $28/month.  You have to take a look at how the customers tier out and what the monthly flux is in the customer base.  For some more information check out SaaS Revenue Primer: Flux Analysis.

Based on the $776K revenues in July 2009 TechCrunch estimated that Meetup had a $9.2 million annual run rate.  A closer look at the numbers indicates that Meetup is probably more on track to do about $8.3 million.

Take a look at the following summary table:

 meetup 3

Like all SaaS businesses, Meetup has some seasonality in their numbers.  While quarterly revenues have been steadily growing, the growth rate from one quarter to the next has varied significantly.  Additionally, as Meetup’s total revenues have grown, their year over year growth rate has continued to decline.  Sometimes it’s easier to see these relationships in a graph.  For example, the following graph shows how much Meetup’s revenues increased each quarter since Q3 2006:

 meetup 4

As you can see, the first quarter of the year tends to be the strongest growth quarter for Meetup, with Q4 being the worst.  There was some anomaly in Meetup’s business between the first and second quarter of 2008 when revenues were basically flat.  Some other bloggers have pointed out that in 2008 Meetup powered a lot of election related events which accounted for a chunk of their growth.  But, Meetup has been able to sustain not only historical revenue levels, but grow revenues in 2009 so they are clearly not a ‘one-election-pony’. 

Another interesting trend is looking at how revenues grew on a year over year basis.  Take a look at the following:

meetup 5

This chart shows the relative growth and decline of Meetup’s revenue growth (not their quarterly revenues).  As the chart indicates, in 2008 Meetup’s revenues growth decelerated when comparing 2008 performance against 2007, but has begun to tick up in 2009.  My estimate of Meetup’s full 2009 revenues of $8.3 million is based on the assumption that they can continue to grow revenues sequentially at 29% in the second half of 2009.  While that is better than their historical trend has been it is not unreasonable to expect that an improving economy will lift Meetup’s revenues. 

Since Meetup has actual revenues and profits, it’s possible to come up with an estimated valuation for the company by looking at a few comparable companies.  Enterprise Value is the most common metric used to assess the value of companies.  Enterprise value is basically equal to the equity value of the company (market cap for public companies) minus cash plus debt.  For more info on calculating enterprise value check out this post.  A common valuation metric is the Enterprise Value/Revenue multiple.  EV/Revenue is simply the Enterprise Value of a company divided by its trailing twelve months revenues.  It basically says the value of a company is equal to so many years of the company’s revenues.  For example, a 2.5x EV/Revenue multiple implies that the company is worth about 2.6 years of its most recent revenues.  Take a look at the following table:

 meetup 6

Typical boring software companies have relatively low EV/Revenue valuations – 1.0x to 2.5x.  High growth companies have much higher ones.  If we were to assume that Meetup will do about $8.3 million in revenues in 2009 and they would be valued, on a relative basis somewhere between Salesforce.com and Google, then their estimated enterprise value would be about $44 million dollars (Note that Meetup claims to have about $8 million left in the bank.)  If one were to value them at half of Facebook’s recent valuation they’d be worth a little over $115 million.  If you one of the lucky 57 employees at Meetup today your stock has been worth a lot before and has excellent prospects going forward.

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