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SOFTWARE & SERVICES 20 OCTOBER 2009
WEB 2.O WEEKLY
DAVID SHORE, CFA, MBA 416.860.6784
david.shore@researchcapital.comDamian Wojcichowsky, CFA (Associate), 416.860.7652
GAMING AND ENTERTAINMENT ATTRACTING MORE CASH
SOCIAL NETWORKS THE PLATFORM FOR AN EXPLOSION OF ONLINE ENTERTAINMENT
Among the spaces most touched by Web 2.0 is entertainment (and specifically online gaming). This week’s Web 2.0Weekly illustrates the recent attraction of the venture funding community to video, gaming, and social networking.Key highlights include:
•
Gaming companies are second to Social Networking in number of companies funded in the past three months.
•
Seven of the top 10 share price gainers in the week were gaming-related companies.
•
As we highlighted in the last issue, the value of virtual goods market – indelibly a function of social games, suchas Farmville – is expected to exceed $1 billion next year.
•
 
Social games are among the fastest growing online user populations.
For example,
Café World 
(a Zyngagame) reached more than 10 million monthly active users since its October 2, 2009 launch.
FOLLOW THE USERS…
Several reasons for the rapid explosion in online gaming interest:(1) Broadband streaming of video has vastly improved the quality and entertainment value of gaming offerings.(2)
Tie-in with Social Networks
, such as Facebook, provides exposure for the myriad third-party gamedevelopers to massive and growing user bases who represent high-value target consumers in terms ofpercentage of time spent online and level of interest in video games.(3) If the online form of entertainment involves good content, users have demonstrated that consumption willoccur wherever it is available. This type of consumption allows for far greater volume of use than conventionalgaming.
Capital Market Activity by Sector - Last Three Months
2,025.0 192.3 116.5 100.0 96.4 67.1 46.0 39.4 37.9 35.5 34.0 26.1 17.1 17.1 15.8 14.0 13.2 9.0 6.0 3.9 2.8 2.0 1.3 0.40.020.040.060.080.0100.0120.0140.0160.0180.0200.0
   S   M   S   /   V  o   i  c  e   V  e  r   t   i  c  a   l   C  o  m  m  u  n   i   t   i  e  s   G  a  m   i  n  g   M   i  c  r  o   b   l  o  g   S  o  c   i  a   l   N  e   t  w  o  r   k  s   V   i   d  e  o   I  n   f  r  a  s   t  r  u  c   t  u  r  e   A   d  v  e  r   t   i  s   i  n  g   C  r  o  w   d  s  o  u  r  c  e   d   C  o  n   t  e  n   t   M  u  s   i  c   S  e  a  r  c   h   E  n   t  e  r  p  r   i  s  e   C  o   l   l  a   b  o  r  a   t   i  o  n   V   i  r   t  u  a   l   W  o  r   l   d   M  o   b   i   l  e   C  o  m  m  e  n   t   /   R  e  p  u   t  a   t   i  o  n   A   d  v  e  r   t   i  s   i  n  g   /   M  o   b   i   l  e   A  n  a   l  y   t   i  c  s   M  e   d   i  a   S  o  c   i  a   l   C  o  m  m  e  r  c  e   A  g  g  r  e  g  a   t   i  o  n   M  o   b   i   l  e   A   d   O  n   l   i  n  e   L  e  a  r  n   i  n  g   C   l  a  s  s   i   f   i  e   d
1 3 8 1 11 6 4 7 4 5 3 4 3 3 5 2 1 3 1 1 1 1 1 1
   (   U   S   $  m   )
# companies
 
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
 
 
 Page 2
THE WEB 2.0 UNIVERSE
Eighty-nine public Web 2.0 companies:
Our Web 2.0 universe contains 89 companies, with a combined market cap ofapproximately $72 billion (Figure 1). The median market cap for the group is $43 million, with average trailing revenue of$161 million (median $43 million). The companies are also generally profitable with a median EBITDA margin of 12.5%.On a valuation basis, the overall average is 4.6x trailing revenue (median 1.9x) and 11.8x trailing EBITDA (median 10.4x).Twenty of the companies have more than 500 employees.
Comparable Company Analysis > Web 2.0
Company NameLTM as ofTickerExchangeTradingCurrencyHQCurrentPriceUSD MarketCap ($m)USD LTM TotalRev ($m)USD LTM TotalEBITDA ($m)EBITDA%TEV/LTMRevenueTEV/LTMEBITDAEmployees
Accelerize New Media, Inc.6/30/2009ACLZOTCBBUSDUnited States0.5515.4 4.4 (3.7)-83.3%4.6x- 11Actoz Soft Co., Ltd.6/30/2009A052790KOSEKRWSouth Korea 15,600 113.2 108.7 25.9 23.8%0.7x3.1x NAAQ Interactive, Inc.6/30/20093838TSEJPYJapan 49,000 29.8 66.1 (2.0)-2.9%0.1x- NAAssociated Media Holdings Inc.6/30/2007ASMHOTCPKUSDUnited States0.010.4 0.1 (2.3)NM12.6x- 3Bigstring Corp.6/30/2009BSGCOTCBBUSDUnited States0.042.4 0.1 (1.5)NM-- 4Betawave Corporation6/30/2009BWAVOTCBBUSDUnited States0.041.2 9.4 (12.6)NM-- 51Beyond Commerce, Inc.6/30/2009BYOCOTCBBUSDUnited States0.114.9 11.7 (12.8)NM0.9x- 101Bright Things plc3/31/2009AIM:BGTAIMGBPUnited Kingdom0.015.9 0.0 (2.7)NM-- NABroadWebAsia Inc.9/30/2008BWBAOTCPKUSDUnited States0.032.5 0.0 (4.6)NM-- 46CDC Corp.6/30/2009CHIN.ANasdaqGSUSDHong Kong2.53268.1 361.6 25.1 6.9%0.7x10.5x 2,227Changyou.com Limited6/30/2009CYOUNasdaqGSUSDChina31.721,744.6 241.2 147.2 61.0%6.1x10.0x 628China Gateway Corporation9/30/2008CGWYOTCPKUSDUnited States0.000.0 6.7 (6.6)-98.9%0.0x- 37Chinese Gamer International6/30/2009GTSM:3083GTSMTWDTaiwan 475 1,231.9 61.6 34.7 56.3%18.8x33.4x 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:CXTSXCADCanada176.7 89.8 9.7 10.8%0.6x5.8x NADADA SpA6/30/2009CM:DACMEURItaly7.69182.6 241.9 31.8 13.1%1.0x7.3x NADXN Holdings Bhd5/31/2009DXNKLSEMYRMalaysia0.6542.6 77.1 11.1 14.4%0.7x5.2x NADibz International, Inc.NADIBZOTCPKUSDUnited States0.000.0 NA NM NM-- NADigitalPost Interactive, Inc.6/30/2009DGLPOTCBBUSDUnited States0.064.6 1.0 (1.4)NM6.7x- 7DigitalTown, Inc.8/31/2009DGTWOTCBBUSDUnited States1.5041.1 0.0 (1.8)NM-- 3Dolphin Digital Media, Inc.6/30/2009DPDMOTCBBUSDUnited States0.3820.4 0.6 (3.4)NM36.7x- NAEolith Co. Ltd.12/31/2008A041060KOSEKRWSouth Korea 605 36.7 15.4 (3.6)-23.6%2.5x- NAExtensions, Inc.6/30/2009EXTIOTCPKUSDUnited States0.167.1 NM NM NM-- 2Fluid Music Canada, Inc.6/30/2009TSX:FMNTSXCADUnited States1.3866.6 5.3 (5.1)-95.2%11.2x- NAFrogster Interactive Pictures AG6/30/2009FRGXTRAEURGermany20.5076.9 9.6 (4.5)-47.0%7.8x- NAGamania Digital Entertainment Co., Ltd.6/30/20096180GTSMTWDTaiwan50.00234.1 140.6 25.1 17.9%1.5x8.4x NAGameOn Co Ltd.6/30/20093812TSEJPYJapan 90,100 97.4 81.9 20.1 24.5%0.3x1.1x NAGeoSentric Oyj6/30/2009GEO1VHLSEEURFinland0.0565.8 5.4 (17.4)NM12.1x- 115Giant Interactive Group, Inc.6/30/2009GANYSEUSDChina81,718.7 198.5 124.1 62.5%-- 1,570GigaMedia Ltd.3/31/2009GIGMNasdaqGSUSDTaiwan4.81262.2 183.6 NM NM1.0x- 751Gravity Co., Ltd6/30/2009GRVYNasdaqGMUSDSouth Korea1.6445.6 49.1 16.6 33.9%-- 469Gree, Inc.6/30/2009TSE:3632TSEJPYJapan 4,840 2,423.2 156.0 93.7 60.1%14.8x24.6x NAGungHo Online Entertainment, Inc.6/30/20093765OSEJPYJapan 217,500 278.7 119.5 26.6 22.2%2.0x9.2x NAHanbitSoft, Inc.6/30/2009A047080KOSEKRWSouth Korea 4,085 75.0 60.7 1.4 2.3%1.0x43.5x NAIAC/InterActiveCorp.6/30/2009IACINasdaqGSUSDUnited States19.182,539.5 1,392.3 52.7 3.8%0.6x15.2x 3,200IAS Energy, Inc.4/30/2009IASA.EOTCBBUSDCanada0.107.1 0.0 (0.6)NM-- NAiseemedia Inc.3/31/2009IEETSXVCADCanada0.146.6 1.6 (5.0)NM3.6x- NAJumbuck Entertainment Limited6/30/2009ASX:JMBASXAUDAustralia0.3816.2 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 8 1,120.1 139.1 61.4 44.2%8.1x18.3x 2,463Lingo Media Corporation6/30/2009TSXV:LMTSXVCADCanada0.9410.8 1.2 (1.9)NM8.2x- NALiveWorld Inc.6/30/2009LVWDOTCPKUSDUnited States0.041.3 10.6 (0.1)-1.2%0.0x- NALookSmart, Ltd.6/30/2009LOOKNasdaqGMUSDUnited States1.2020.5 56.8 (4.4)-7.8%-- 90Magnitude Information Systems Inc.6/30/2009MAGYOTCBBUSDUnited States0.015.4 0.1 (2.5)NM-- 14Mixi, Inc.6/30/20092121TSEJPYJapan640000.001,102.8 136.8 46.2 33.8%7.2x21.3x NAModern Times Group Mtg AB6/30/2009MTG BOMSEKSweden329.003,113.5 1,971.4 302.9 15.4%1.9x12.2x 2,969MOKO.mobi Limited6/30/2009MKBASXAUDAustralia0.087.3 0.7 (2.4)NM9.1x- NAMyriad Group AG6/30/2009MYRNSWXCHFSwitzerland4.50192.9 63.0 3.4 5.4%3.0x- 405NEOWIZ Games Corporation12/31/2008A095660KOSEKRWSouth Korea37050.00654.5 207.3 55.7 26.8%3.1x11.6x NANetDragon WebSoft, Inc.6/30/2009777SEHKHKDChina 5 334.9 89.3 25.7 28.7%2.1x7.3x 3,109Netease.com Inc.6/30/2009NTESNasdaqGSUSDChina39.365,094.2 472.4 297.4 63.0%-- 3,109NeuLion Incorporated6/30/2009TSX:NLNTSXCADCanada0.8185.0 21.5 (13.0)-60.3%3.5x- 237NeXplore Corporation6/30/2009NXPCOTCPKUSDUnited States139.0 1.7 (13.3)NM25.3x- NANgi Group Inc.6/30/20092497TSEJPYJapan28200.0039.1 93.0 6.9 7.4%-- NANorthgate Technologies Limited6/30/2009590057BSEINRIndia36.3026.4 82.9 (41.5)-50.0%0.3x- NAOpen Text Corp.6/30/2009OTEXNasdaqGSUSDCanada40.922,297.6 785.7 205.1 26.1%3.0x11.3x 3,411Openwave Systems Inc.6/30/2009OPWVNasdaqGSUSDUnited States2.53211.3 191.7 4.9 2.6%0.5x20.9x 590Perfect World Co., Ltd.6/30/2009PWRDNasdaqGSUSDChina44.962,211.2 255.6 142.2 55.6%0.7x1.3x 2,096PNI Digital Media Inc.6/30/2009TSXV:PNTSXVCADCanada1.7555.0 21.0 2.3 11.0%2.5x23.0x NAQuepasa Corp.6/30/2009QPSAOTCBBUSDUnited States 1 17.8 0.2 (10.6)NM-- 74OAO RBC Information Systems12/31/2007RBCIRTSUSDRussia1.50208.1 157.4 20.6 13.1%0.0x0.3x NAShanda Interactive Entertainment Ltd.6/30/2009SNDANasdaqGSUSDChina49.383,321.1 629.0 296.7 47.2%-- 3,124Shutterfly, Inc.6/30/2009SFLYNasdaqGSUSDUnited States15.92405.3 218.6 27.3 12.5%1.6x12.5x 514SK Communications Co., Ltd.12/31/2008A066270KOSEKRWSouth Korea8210.00288.1 192.7 12.5 6.5%1.5x23.0x 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 Ventures Inc.12/31/2008SMVIOTCPKUSDUnited States00.0 0.1 (0.1)-60.6%4.5x- NASocialwise, Inc.6/30/2009SCLWOTCBBUSDUnited States0.6127.0 0.0 (5.6)NM-- NASohu.com Inc.6/30/2009SOHUNasdaqGSUSDChina69.992,683.0 485.1 209.6 43.2%4.5x10.4x 3,197Spark Networks, Inc.6/30/2009LOVAMEXUSDUnited States 2 50.6 50.5 10.8 21.3%1.0x4.5x 183SpectrumDNA, Inc.6/30/2009SPXAOTCBBUSDUnited States 0 6.8 0.1 (2.5)NM-- 7 Tencent Holdings Ltd.6/30/2009700SEHKHKDChina 145 33,964.6 1,391.6 680.3 48.9%26.9x- 6,421 The Parent Company8/2/2008KIDS.QOTCPKUSDUnited States0.010.2 112.0 (13.5)-12.0%0.2x- 347 The9 Limited12/31/2008NCTYNasdaqGSUSDChina8.89223.1 250.6 85.5 34.1%-- 1,626 TheStreet.com, Inc.3/31/2009TSCMNasdaqGMUSDUnited States3.0091.8 67.0 1.9 2.9%0.4x14.0x 310 Tree.Com, Inc.6/30/2009TREENasdaqGMUSDUnited States7.9085.3 216.6 (0.7)-0.3%0.4x- 700Uniserve Communications Corp.5/31/2009TSXV:USSTSXVCADCanada0.051.1 17.1 (0.2)-1.0%0.2x- NAUnited Online Inc.6/30/2009UNTDNasdaqGSUSDUnited States9.03757.1 949.8 203.2 21.4%1.1x5.0x 1,469UOMO Media, Inc7/31/2009UOMOOTCBBUSDCanada09.5 0.8 (0.4)-54.2%12.6x- NAValueClick Inc.6/30/2009VCLKNasdaqGSUSDUnited States141,197.5 563.6 99.0 17.6%1.9x10.7x 1,189VOIS, Inc.6/30/2009VOISOTCBBUSDUnited States04.1 0.0 (1.0)NM-- 4Webzen Inc.6/30/2009WZENNasdaqGMUSDSouth Korea2.6531.4 23.2 2.3 9.9%-- 328Wizzard Software Corporation6/30/2009WZEAMEXUSDUnited States0.4522.7 5.3 (4.5)-84.9%4.5x- 110Worlds.com Inc.6/30/2009WDDDOTCBBUSDUnited States0.094.7 0.1 (0.7)NM-- 1Wyndstorm CorporationNAWYNDOTCPKUSDUnited States0.101.8 NA NM NM-- NAXING AG6/30/2009O1BC XTRAEURGermany37.10286.5 58.9 17.0 28.8%4.0x13.8x 246YD Online Corp.12/31/2007A052770KOSEKRWSouth Korea8090.00101.6 57.4 12.4 21.6%1.9x8.9x NAYnk Korea Inc.12/31/2008A023770KOSEKRWSouth Korea4035.0018.0 11.9 1.3 10.5% - - NAHigh33,964.61,971.4680.363.0%36.7x43.5x6,421Low0.00.0-41.5-98.9% - - 1
Average811.1161.239.06.1%4.6x11.8x936
Median42.657.11.712.5%1.9x10.4x246
 
Figure 1. Web 2.0 Universe Summary Source. Capital IQ 
 
 Page 3
CAPITAL MARKETS ACTIVITY (M&A AND FINANCING)
October keeping pace:
Total transaction value in the Web 2.0 universe for October is $125.2 (vs. $89.5 million at time oflast publication). The week ending October 19 has brought 11 financings to the sector bringing the total for October to 20transactions averaging $7.8 million each (vs. an average of $9.0 million last week). The largest transaction in the weekwas the $16 million financing of HubSpot, a Web marketing optimization solutions developer. The biggest deal in the monthis Yext at $25 million. In comparison, total capital raised in September was $232.8 million, averaging $9.0 million (26deals); August was $208.5 million, averaging $7.7 million (27 deals); and July (35 deals) $191.4 million, averaging $5.5million.
Financing Activity Last Twelve Months
9.77.06.57.16.66.214.64.95.57.69.07.87.00.050.0100.0150.0200.0250.0300.0350.0400.0Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09
   (   U   S   $  m   )
0.02.04.06.08.010.012.014.016.0
   (   U   S   $  m   )
Series1Series2*May-09 includes $200m FB investment
 
Figure 2. Financings, Last Twelve Months Source. Company reports 
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