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SOFTWARE & SERVICES 30 SEPTEMBER 2009
WEB 2.O WEEKLY
DAVID SHORE, CFA, MBA 416.860.6784
david.shore@researchcapital.comDamian Wojcichowsky, CFA (Associate), 416.860.7652
SHANDA IPO – NOT ALL FUN AND GAMES
BIGGEST IPO OF THE YEAR FALTERS AT STARTING LINE
Shanda Games Ltd. (Nasdaq: GAME) raised $1.04 billion in the largest US-listed IPO for 2009 – but ended its firsttrading day down 14% from its initial price of $12.50 per share. The company, a spin-off of Shanda InteractiveEntertainment Ltd. (Nasdaq: SNDA) which was founded in 2008, grew revenue 43% y/y in the first half of 2009 to$322 million (implying an annualized Price/Revenue multiple of 6.7x) while net income rose 75% y/y in the sameperiod (implying an annualized Price/Earnings multiple of 5.5x). These valuation multiples compare to our comparablegroup averages for LTM TEV/Revenue and P/E of 5.6x and 18.6x, respectively.Given that Shanda went public at a modest 20% premium to our Web 2.0 comparable group average LTMTEV/Revenue multiple while experiencing strong top line growth, we would expect a better first-day performance forthe stock. We speculate that key drivers behind the poor early performance of this IPO include the heavy mediacoverage for the IPO (“the biggest IPO of the year”) and the likelihood that investors panicked as their first day’slosses mounted.
Financing Activity Last Twelve Months
7.09.77.06.57.16.66.214.64.95.57.95.416.20.050.0100.0150.0200.0250.0300.0350.0400.0Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09
   (   U   S   $  m   )
0.02.04.06.08.010.012.014.016.018.0
   (   U   S   $  m   )
TotalAverage*May-09 includes $200m FB investment
 
Deal flow steady:
Total transaction value in the Web 2.0 universe for September rose to $96.6 million, up from $74.2million at this time last week. This week has brought another four financings to the sector, bringing the month-to-datetotal to 18 transactions averaging $5.4 million each (compared with our month-to-date average of $5.7 million lastweek over thirteen transactions). The largest transaction in the week was a $10 million financing of social network,Mzinga. This compares to the month high of $20 million for Ensequence. In comparison, total capital raised in Augustwas $208.5 million, averaging $7.7 million (27 deals); for July (35 deals) $191.4 million, averaging $5.5 million; andJune (42 deals) was $204.7 million (averaging $4.9 million).
This report has been created by Analysts that are employed by Research Capital Corporation, a Canadian Investment Dealer.For further disclosures, please see last page of this report.
www.researchcapital.comToronto 416.860.7600 Montreal 514.399.1500 Vancouver 604.662.1800 Calgary 403.265.7400 Regina 306.566.7550
 
 
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THE WEB 2.0 UNIVERSE
Ninety public Web 2.0 companies:
Our Web 2.0 universe contains 90 companies, with a combined market cap ofapproximately $66 billion (Figure 1). The median market cap for the group is $46 million, with average trailing revenue of$161 million (median $54 million). The companies are also generally profitable, with a median EBITDA margin of 11.8%.On a valuation basis, the overall average is 5.6x trailing revenue (median 2.1x) and 12.6x trailing EBITDA (median 10.2x).Twenty of the companies have more than 500 employees.
Comparable Company Analysis > Web 2.0
Company NameLTM as ofTickerExchangeTradingCurrencyHQCurrentPriceUSD MarketCap ($m)USD LTM TotalRev ($m)USD LTM TotalEBITDA ($m)EBITDA%TEV/LTMRevenueTEV/LTMEBITDAEmployees
Accelerize New Media, Inc.6/30/2009ACLZOTCBBUSDUnited States0.5214.6 4.4 (3.7)-83.3%4.4x- 11Actoz Soft Co., Ltd.6/30/2009A052790KOSEKRWSouth Korea 19,200 138.7 108.7 25.9 23.8%1.0x4.1x NAAQ Interactive, Inc.6/30/20093838TSEJPYJapan 48,550 29.5 66.1 (2.0)-2.9%0.1x- NAAssociated Media Holdings Inc.6/30/2007ASMHOTCPKUSDUnited States0.010.6 0.1 (2.3)NM15.6x- 3Bigstring Corp.6/30/2009BSGCOTCBBUSDUnited States0.032.0 0.1 (1.5)NM48.2x- 4Betawave Corporation6/30/2009BWAVOTCBBUSDUnited States0.092.6 9.4 (12.6)NM-- 51Beyond Commerce, Inc.6/30/2009BYOCOTCBBUSDUnited States0.125.7 11.7 (12.8)NM1.0x- 101Bright Things plc3/31/2009AIM:BGTAIMGBPUnited Kingdom0.015.9 0.0 (2.7)NM-- NABroadWebAsia Inc.9/30/2008BWBAOTCPKUSDUnited States0.2319.5 0.0 (4.6)NM-- 46CDC Corp.6/30/2009CHIN.ANasdaqGSUSDHong Kong2.63278.7 361.6 25.1 6.9%0.8x10.9x 2,227Changyou.com Limited6/30/2009CYOUNasdaqGSUSDChina37.752,076.3 241.2 147.2 61.0%7.5x12.2x 628China Gateway Corporation9/30/2008CGWYOTCPKUSDUnited States0.020.3 6.7 (6.6)-98.9%0.0x- 37Chinese Gamer International6/30/2009GTSM:3083GTSMTWDTaiwan 452 1,172.2 61.6 34.7 56.3%17.9x31.7x NACLICKER Inc.5/31/2009CLKZOTCBBUSDUnited States0.010.7 2.5 (1.2)-45.8%0.3x- 22CornerWorld Corporation7/31/2009CWRLOTCBBUSDUnited States0.065.7 6.8 NM NM2.4x- 16Cyberplex Inc.6/30/2009TSX:CXTSXCADCanada177.3 89.8 9.7 10.8%0.6x5.9x NADADA SpA6/30/2009CM:DACMEURItaly6.86162.9 241.9 31.8 13.1%0.9x6.7x NADXN Holdings Bhd5/31/2009DXNKLSEMYRMalaysia0.6039.1 77.1 11.1 14.4%0.7x4.9x NADibz International, Inc.NADIBZOTCPKUSDUnited States0.000.0 NA NM NM-- NADigitalPost Interactive, Inc.6/30/2009DGLPOTCBBUSDUnited States0.064.9 1.0 (1.4)NM6.9x- 7DigitalTown, Inc.5/31/2009DGTWOTCBBUSDUnited States2.6472.2 NM (2.5)NM-- 3Dolphin Digital Media, Inc.6/30/2009DPDMOTCBBUSDUnited States0.4725.2 0.6 (3.4)NM45.1x- NAEolith Co. Ltd.12/31/2008A041060KOSEKRWSouth Korea 740 44.9 15.4 (3.6)-23.6%3.0x- NAExtensions, Inc.6/30/2009EXTIOTCPKUSDUnited States0.2410.7 NM NM NM-- 2Fluid Music Canada, Inc.6/30/2009TSX:FMNTSXCADUnited States1.1656.0 5.3 (5.1)-95.2%9.1x- NAFrogster Interactive Pictures AG6/30/2009FRGXTRAEURGermany18.0166.6 9.6 (4.5)-47.0%6.8x- NAGamania Digital Entertainment Co., Ltd.6/30/20096180GTSMTWDTaiwan48.00224.8 140.6 25.1 17.9%1.4x8.0x NAGameOn Co Ltd.6/30/20093812TSEJPYJapan 92,000 99.5 81.9 20.1 24.5%0.3x1.2x NAGeoSentric Oyj6/30/2009GEO1VHLSEEURFinland0.0565.8 5.4 (17.4)NM12.1x- 115Giant Interactive Group, Inc.6/30/2009GANYSEUSDChina81,752.7 198.5 124.1 62.5%-- 1,570GigaMedia Ltd.3/31/2009GIGMNasdaqGSUSDTaiwan5.34291.1 183.6 NM NM1.2x- 751Gravity Co., Ltd6/30/2009GRVYNasdaqGMUSDSouth Korea1.9153.1 49.1 16.6 33.9%-- 469Gree, Inc.6/30/2009TSE:3632TSEJPYJapan 4,900 1,226.6 156.0 93.8 60.1%7.1x11.8x NAGungHo Online Entertainment, Inc.6/30/20093765OSEJPYJapan 226,000 289.5 119.5 26.6 22.2%2.1x9.6x NAHanbitSoft, Inc.6/30/2009A047080KOSEKRWSouth Korea 4,410 80.9 60.7 1.4 2.3%1.1x47.7x NAIAC/InterActiveCorp.6/30/2009IACINasdaqGSUSDUnited States20.872,763.2 1,392.3 52.7 3.8%0.7x19.4x 3,200IAS Energy, Inc.4/30/2009IASA.EOTCBBUSDCanada0.074.9 0.0 (0.6)NM-- NAiseemedia Inc.3/31/2009IEETSXVCADCanada0.136.1 1.6 (5.0)NM3.3x- NAJumbuck Entertainment Limited6/30/2009ASX:JMBASXAUDAustralia0.3916.6 16.7 7.2 42.8%0.6x1.4x 79KAB Distribution Inc.6/30/2009TSX:KABTSXCADCanada 0 0.6 67.9 4.0 5.8%-- NAKingsoft Co. Ltd.6/30/20093888SEHKHKDChina 7 994.9 139.1 61.4 44.2%7.1x16.0x 2,271Lingo Media Corporation6/30/2009TSXV:LMTSXVCADCanada0.9010.7 1.2 (1.9)NM8.1x- NALiveWorld Inc.6/30/2009LVWDOTCPKUSDUnited States0.051.5 10.6 (0.1)-1.2%0.0x- NALookSmart, Ltd.6/30/2009LOOKNasdaqGMUSDUnited States1.1519.7 56.8 (4.4)-7.8%-- 90Magnitude Information Systems Inc.6/30/2009MAGYOTCBBUSDUnited States0.014.1 0.1 (2.5)NM-- 14Mixi, Inc.6/30/20092121TSEJPYJapan589000.001,014.9 136.8 46.2 33.8%6.5x19.4x NAModern Times Group Mtg AB6/30/2009MTG BOMSEKSweden308.502,919.5 1,971.4 302.9 15.4%1.8x11.5x 2,969MOKO.mobi Limited6/30/2009MKBASXAUDAustralia0.085.8 0.7 (2.4)NM6.9x- NAMyriad Group AG12/31/2008MYRNSWXCHFSwitzerland4.50192.9 40.0 0.8 1.9%5.0x- 405NEOWIZ Games Corporation12/31/2008A095660KOSEKRWSouth Korea43100.00761.4 207.3 55.7 26.8%3.6x13.5x NANetDragon WebSoft, Inc.6/30/2009777SEHKHKDChina 5 343.1 89.3 25.7 28.7%2.2x7.7x 2,426Netease.com Inc.6/30/2009NTESNasdaqGSUSDChina44.095,706.4 472.4 297.4 63.0%-- 3,109NeuLion Incorporated6/30/2009TSX:NLNTSXCADCanada0.98102.8 21.5 (13.0)-60.3%4.4x- 237NeXplore Corporation6/30/2008NXPCOTCPKUSDUnited States130.7 0.7 (6.2)NM49.2x- NANgi Group Inc.6/30/20092497TSEJPYJapan24200.0033.5 93.0 6.9 7.4%-- NANorthgate Technologies Limited6/30/2009590057BSEINRIndia43.2531.4 82.9 (41.5)-50.0%0.4x- NAOpen Text Corp.6/30/2009OTEXNasdaqGSUSDCanada37.552,108.4 785.7 205.1 26.1%2.7x10.4x 3,411Openwave Systems Inc.6/30/2009OPWVNasdaqGSUSDUnited States2.60217.1 191.7 4.9 2.6%0.6x22.1x 590Perfect World Co., Ltd.6/30/2009PWRDNasdaqGSUSDChina44.802,203.3 255.6 142.2 55.6%0.7x1.3x 2,096PNI Digital Media Inc.6/30/2009TSXV:PNTSXVCADCanada1.9059.8 21.0 2.3 11.0%2.8x25.0x NAQuepasa Corp.6/30/2009QPSAOTCBBUSDUnited States 2 21.8 0.2 (10.6)NM-- 74OAO RBC Information Systems12/31/2007RBCIRTSUSDRussia1.16160.9 157.4 20.6 13.1%0.0x0.3x NAShanda Interactive Entertainment Ltd.6/30/2009SNDANasdaqGSUSDChina48.223,219.6 629.0 296.7 47.2%-- 3,124Shutterfly, Inc.6/30/2009SFLYNasdaqGSUSDUnited States17.24438.9 218.6 27.3 12.5%1.7x13.7x 514SK Communications Co., Ltd.12/31/2008A066270KOSEKRWSouth Korea8800.00308.8 192.7 12.5 6.5%1.6x24.6x NASNAP Interactive, Inc.6/30/2009STVIOTCBBUSDUnited States 0 3.8 3.5 0.9 27.0%0.6x2.3x 11SNM Global Holdings9/30/2008SNMNOTCPKUSDUnited States0.000.0 2.0 (0.7)-34.8%1.1x- 33Social Media Venures, Inc.12/31/2008SMVIOTCPKUSDUnited States00.0 0.1 (0.1)-60.6%4.5x- NASocialwise, Inc.6/30/2009SCLWOTCBBUSDUnited States0.6026.6 0.0 (5.6)NM-- NASohu.com Inc.6/30/2009SOHUNasdaqGSUSDChina67.212,576.4 485.1 209.6 43.2%4.3x9.9x 3,197Spark Networks, Inc.6/30/2009LOVAMEXUSDUnited States 2 48.0 50.5 10.8 21.3%0.9x4.3x 183SpectrumDNA, Inc.6/30/2009SPXAOTCBBUSDUnited States 0 6.3 0.1 (2.5)NM-- 7 Tencent Holdings Ltd.6/30/2009700SEHKHKDChina 122 28,657.5 1,391.6 680.3 48.9%22.6x46.2x 6,421 The Parent Company8/2/2008KIDS.QOTCPKUSDUnited States0.020.4 112.0 (13.5)-12.0%0.2x- 347 The9 Limited12/31/2008NCTYNasdaqGSUSDChina7.81196.0 250.6 85.5 34.1%-- 1,626 TheStreet.com, Inc.3/31/2009TSCMNasdaqGMUSDUnited States2.8988.5 67.0 1.9 2.9%0.4x12.3x 310 Total Sport Online AS3/31/2006TOSOOTCNONOKNorway0.030.2 2.3 (1.2)-50.6%4.6x- 16 Tree.Com, Inc.6/30/2009TREENasdaqGMUSDUnited States7.3779.6 216.6 (0.7)-0.3%0.4x- 700Uniserve Communications Corp.2/28/2009TSXV:USSTSXVCADCanada0.040.9 23.9 0.1 0.2%0.2x- NAUnited Online Inc.6/30/2009UNTDNasdaqGSUSDUnited States8.16684.1 949.8 203.2 21.4%1.0x4.7x 1,469UOMO Media, Inc7/31/2009UOMOOTCBBUSDCanada010.9 0.8 (0.4)-54.2%14.3x- NAValueClick Inc.6/30/2009VCLKNasdaqGSUSDUnited States131,126.9 563.6 99.0 17.6%1.8x10.0x 1,189VOIS, Inc.6/30/2009VOISOTCBBUSDUnited States03.7 0.0 (1.0)NM-- 4Webzen Inc.6/30/2009WZENNasdaqGMUSDSouth Korea2.9835.3 23.2 2.3 9.9%-- 328Wizzard Software Corporation6/30/2009WZEAMEXUSDUnited States0.5125.7 5.3 (4.5)-84.9%5.0x- 110Worlds.com Inc.6/30/2009WDDDOTCBBUSDUnited States0.105.2 0.1 (0.7)NM-- 1Wyndstorm CorporationNAWYNDOTCPKUSDUnited States0.101.8 NA NM NM-- NAXING AG6/30/2009O1BC XTRAEURGermany33.68260.1 58.9 17.0 28.8%3.5x12.2x 246YedangOnline Corp.12/31/2007A052770KOSEKRWSouth Korea8850.00111.1 57.4 12.4 21.6%2.1x9.7x NAYnk Korea Inc.12/31/2008A023770KOSEKRWSouth Korea3750.0016.8 11.9 1.3 10.5% - - NAHigh28,657.51,971.4680.363.0%49.2x47.7x6,421Low0.00.0-41.5-98.9% - - 1
Average734.1161.038.65.2%5.6x12.6x901
Median46.453.71.311.8%2.1x10.2x242
 
Figure 1. Web 2.0 Universe Summary Source. Capital IQ 
CAPITAL MARKETS ACTIVITY (M&A AND FINANCING)
 
 Page 3
Deal flow steady:
Total transaction value in the Web 2.0 universe for September rose to $96.6 million, up from $74.2million at this time last week. This week has brought another four financings to the sector, bringing the month-to-date totalto 18 transactions averaging $5.4 million each (compared with our month-to-date average of $5.7 million last week overthirteen transactions). The largest transaction in the week was a $10 million financing of social network, Mzinga. Thiscompares to the month high of $20 million for Ensequence. In comparison, total capital raised in August was $208.5million, averaging $7.7 million (27 deals); for July (35 deals) $191.4 million, averaging $5.5 million; and June (42 deals)was $204.7 million (averaging $4.9 million).
Financing Activity Last Twelve Months
7.09.77.06.57.16.66.214.64.95.57.95.416.20.050.0100.0150.0200.0250.0300.0350.0400.0Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09
   (   U   S   $  m   )
0.02.04.06.08.010.012.014.016.018.0
   (   U   S   $  m   )
TotalAverage*May-09 includes $200m FB investment
 
Figure 2. Financings, Last Twelve Months Source. Company reports 
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