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SOFTWARE & SERVICES 15 DECEMBER 2009
WEB 2.O WEEKLY
DAVID SHORE, CFA, MBA 416.860.6784
david.shore@researchcapital.comDamian Wojcichowsky, CFA (Associate), 416.860.7652
“GEO-LOCATION-BASED” BECOMING A BIG MONEY PHRASE
GOWALLA VALUATION PUSHES “UNIQUE VISITOR” BOUNDARY
Two transactions this week highlight varying perspectives on user-driven Web 2.0 valuations – the Series B financingof geo-location-based, gaming-oriented social network Gowalla; and the acquisition of Friendster, the third largestsocial network by number of users, by Malaysian payments company, MOL Global. Some of the highlights include:
Gowalla sets a new high:
Gowalla raised $8.5 million in a Series B financing this past week. With just 50,000 userson the location-based social network (driven by the company’s Facebook game application, PackRat, launched in2008), the most recent raise valued the company at $28.4 million, implying a per unique visitor value of $568 – wellabove the previous high we recorded in May 2008 for Plaxo at $200/user.
Geo-location services are hot:
Gowalla’s $568 UV valuation, we believe, is largely based on the company’spositioning in the very popular geo-location application sector. Some of the other metrics we have collected in thespace include Foursquare valued in September at $40/user and Poynt (by Multiplied Media, a publicly tradedcompany) currently valued at $16/user. Our expectation is that UV valuations in this space will increase as morecompanies execute funding raises.
There is a big difference between first and third place:
Friendster’s user base (estimated at 50-150 million users,depending on the source) ranks it third among social networking sites – Facebook leads the way with 300+ millionusers. However, boasting millions of users does not guarantee a windfall valuation – as Friendster’s $0.67/user to$2.00/user (depending on which total user number is used) valuation illustrates. We postulate that building a criticalmass number of users only helps valuation if your application is a leader in its category and therefore represents the
de facto 
“go to” option for users – as is the case with Facebook, which was last valued at $32/user.
Estimated Value per Unique Visitor
$568$200$113$88$48$42$40$32$29$29$22$20$16$16$7$7$5$1$-$100$200$300$400$500$600
GowallaPlaxoMint.comLinkedinFriendFeedTwitterFoursquareFacebookClub PenguinTwitterBeboPeopleMediaMMC(Poynt)PageonceSkypePlayfishStumbleUponFriendsterDec-09May-08Sep-09Oct-08Aug-09Sep-09Sep-09May-09Aug-07Feb-09Mar-08Jul-09Dec-09Dec-09Sep-09Nov-09May-09Dec-09
    (    $    )
 
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 $74 billion (Figure 1). The median market cap for the group is $40 million, with average trailing revenue of$166 million (median $54 million). The companies are also generally profitable with a median EBITDA margin of 11.1%.On a valuation basis, the overall average is 5.9x trailing revenue (median 1.9x) and 10.2x trailing EBITDA (median 7.6x).Twenty of the companies have more than 500 employees.
Comparable Company Analysis > Web 2.0
Company NameLTM as ofTickerExchangeTradingCurrencyHQCurrentPriceUSD MarketCap ($m)USD LTM TotalRev ($m)USD LTM TotalEBITDA ($m)EBITDA%TEV/LTMRevenueTEV/LTMEBITDAEmployees
Accelerize New Media, Inc.9/30/2009ACLZOTCBBUSDUnited States0.6518.7 4.1 (1.5)-36.5%5.7x- 11Actoz Soft Co., Ltd.9/30/2009A052790KOSEKRWSouth Korea 21,050 152.9 115.9 25.7 22.2%1.0x4.4x NAAQ Interactive, Inc.9/30/20093838TSEJPYJapan 40,500 24.6 74.0 3.8 5.1%0.0x0.5x NAAsknet AG9/30/2009XTRA:A5AXTRAEURGermany 4 26.0 103.6 (2.4)NM12.6x- 3Associated Media Holdings Inc.6/30/2007ASMHOTCPKUSDUnited States0.010.4 0.1 (2.3)NM12.6x- 3Bigstring Corp.9/30/2009BSGCOTCBBUSDUnited States0.021.3 0.1 (1.0)NM37.4x- 4Betawave Corporation9/30/2009BWAVOTCBBUSDUnited States0.061.8 8.4 (14.3)NM-- 48Beyond Commerce, Inc.9/30/2009BYOCOTCBBUSDUnited States0.042.0 13.5 (12.4)-91.9%1.0x- 86Bright Things plc3/31/2009AIM:BGTAIMGBPUnited Kingdom0.015.3 0.0 (2.7)NM-- NABroadWebAsia Inc.9/30/2008BWBAOTCPKUSDUnited States0.054.2 0.0 (4.6)NM-- 46CDC Corp.9/30/2009CHIN.ANasdaqGSUSDHong Kong2.39253.3 334.2 20.0 6.0%0.7x11.1x 2,227Changyou.com Limited9/30/2009CYOUNasdaqGSUSDChina31.471,730.9 255.3 157.4 61.7%5.6x9.0x 628China Gateway Corporation9/30/2008CGWYOTCPKUSDUnited States0.010.2 6.7 (6.6)-98.9%0.0x- 37Chinese Gamer International9/30/2009GTSM:3083GTSMTWDTaiwan 431 1,117.8 68.3 39.6 58.0%15.2x26.2x NACLICKER Inc.5/31/2009CLKZOTCBBUSDUnited States0.010.4 2.5 (1.2)-45.8%0.2x- 22CornerWorld Corporation7/31/2009CWRLOTCBBUSDUnited States0.032.9 6.8 NM NM1.9x- 16Cyberplex Inc.9/30/2009TSX:CXTSXCADCanada174.8 105.6 11.7 11.1%0.5x4.7x NADADA SpA6/30/2009CM:DACMEURItaly6.02142.8 241.9 31.8 13.1%0.8x6.0x NADXN Holdings Bhd8/31/2009DXNKLSEMYRMalaysia0.5737.2 77.3 (84.0)NM0.6x- NADibz International, Inc.NADIBZOTCPKUSDUnited States0.010.0 NA NM NM-- NADigitalPost Interactive, Inc.9/30/2009DGLPOTCBBUSDUnited States0.054.6 1.2 (0.9)-73.8%5.7x- 7DigitalTown, Inc.8/31/2009DGTWOTCBBUSDUnited States1.4038.3 0.0 (1.8)NM-- 3Dolphin Digital Media, Inc.9/30/2009DPDMOTCBBUSDUnited States0.2815.9 0.3 (4.6)NM-- NAEolith Co. Ltd.12/31/2008A041060KOSEKRWSouth Korea 565 69.9 15.4 (3.6)-23.6%4.7x- NAExtensions, Inc.9/30/2009EXTIOTCPKUSDUnited States0.4520.0 0.0 NM NM-- 2Fluid Music Canada, Inc.9/30/2009TSX:FMNTSXCADUnited States1.7098.6 5.6 (3.0)-54.0%17.0x- NAFrogster Interactive Pictures AG6/30/2009FRGXTRAEURGermany18.0067.5 9.6 (4.5)-47.0%6.9x- NAGamania Digital Entertainment Co., Ltd.9/30/20096180GTSMTWDTaiwan49.90236.1 151.2 24.9 16.5%1.4x8.5x NAGameOn Co Ltd.9/30/20093812TSEJPYJapan 66,500 71.9 79.3 18.6 23.5%-- NAGeoSentric Oyj9/30/2009GEO1VHLSEEURFinland0.0565.8 4.7 (19.0)NM14.8x- 118Giant Interactive Group, Inc.9/30/2009GANYSEUSDChina71,691.7 202.2 137.9 68.2%-- 1,570GigaMedia Ltd.3/31/2009GIGMNasdaqGSUSDTaiwan3.67200.1 183.6 NM NM0.7x- 751Gravity Co., Ltd9/30/2009GRVYNasdaqGMUSDSouth Korea1.4239.5 49.9 17.7 35.4%-- 469Gree, Inc.9/30/2009TSE:3632TSEJPYJapan 4,830 2,418.2 210.3 122.2 58.1%11.0x19.0x NAGungHo Online Entertainment, Inc.9/30/20093765OSEJPYJapan 152,500 195.4 120.7 26.9 22.3%1.3x5.8x NAHanbitSoft, Inc.9/30/2009A047080KOSEKRWSouth Korea 3,910 71.7 57.6 (0.3)-0.6%1.0x- NAIAC/InterActiveCorp.9/30/2009IACINasdaqGSUSDUnited States19.302,547.0 1,359.6 82.4 6.1%0.7x11.0x 3,200iseemedia Inc.9/30/2009IEETSXVCADCanada0.178.0 1.8 (4.1)NM4.6x- NAJumbuck Entertainment Limited6/30/2009ASX:JMBASXAUDAustralia0.3213.6 16.7 7.2 42.8%0.4x1.0x 79KAB Distribution Inc.6/30/2009TSX:KABTSXCADCanada 0 0.6 67.9 4.0 5.8%-- NAKingsoft Co. Ltd.9/30/20093888SEHKHKDChina 5 739.7 143.4 57.6 40.2%4.7x11.7x 2,271Lingo Media Corporation9/30/2009TSXV:LMTSXVCADCanada0.9010.3 1.3 (2.3)NM7.6x- NALiveWorld Inc.9/30/2009LVWDOTCPKUSDUnited States0.031.0 10.4 0.4 4.1%-- NALookSmart, Ltd.9/30/2009LOOKNasdaqGMUSDUnited States1.0718.3 54.0 (4.5)-8.4%-- 90Magnitude Information Systems Inc.9/30/2009MAGYOTCBBUSDUnited States0.028.9 0.1 (2.3)NM-- 14Mixi, Inc.9/30/20092121TSEJPYJapan807000.001,390.7 139.6 46.1 33.0%9.0x27.3x NAModern Times Group Mtg AB9/30/2009MTG BOMSEKSweden328.603,109.7 2,002.6 282.9 14.1%1.8x12.9x 2,969MOKO.mobi Limited6/30/2009MKBASXAUDAustralia0.1614.8 0.7 (2.4)NM20.0x- NAMyriad Group AG6/30/2009MYRNSWXCHFSwitzerland4.85208.0 63.0 3.4 5.4%3.2x- 405NEOWIZ Games Corporation12/31/2008A095660KOSEKRWSouth Korea43600.00770.2 207.3 55.7 26.8%3.7x13.7x NANetDragon WebSoft, Inc.9/30/2009777SEHKHKDChina 4 276.9 91.4 27.8 30.4%1.4x4.4x 2,426Netease.com Inc.9/30/2009NTESNasdaqGSUSDChina37.024,791.4 482.9 291.8 60.4%-- 3,109NeuLion Incorporated9/30/2009TSX:NLNTSXCADCanada0.7074.9 24.9 (16.1)-64.5%2.5x- 237NeXplore Corporation6/30/2009NXPCOTCPKUSDUnited States135.1 1.7 (13.3)NM23.0x- NANgi Group Inc.9/30/20092497TSEJPYJapan23570.0032.6 81.7 3.2 3.9%-- NANorthgate Technologies Limited9/30/2009590057BSEINRIndia28.6020.8 46.4 (49.8)NM0.4x- NAOpen Text Corp.9/30/2009OTEXNasdaqGSUSDCanada38.252,156.6 814.5 211.1 25.9%2.7x10.6x 3,900Openwave Systems Inc.9/30/2009OPWVNasdaqGSUSDUnited States2.26188.8 190.5 6.2 3.3%0.4x13.5x 590Perfect World Co., Ltd.9/30/2009PWRDNasdaqGSUSDChina43.102,144.5 286.1 157.4 55.0%0.5x0.8x 2,096PNI Digital Media Inc.6/30/2009TSXV:PNTSXVCADCanada1.8558.2 21.0 2.3 11.0%2.7x24.3x NAQuepasa Corp.9/30/2009QPSAOTCBBUSDUnited States 2 29.9 0.2 (9.8)NM-- 74OAO RBC Information Systems12/31/2007RBCIRTSUSDRussia1.60222.0 157.4 20.6 13.1%0.0x0.4x NAShanda Interactive Entertainment Ltd.9/30/2009SNDANasdaqGSUSDChina52.573,535.6 694.3 317.2 45.7%-- 3,124Shutterfly, Inc.9/30/2009SFLYNasdaqGSUSDUnited States17.54450.3 223.1 27.0 12.1%1.5x12.5x 514SK Communications Co., Ltd.12/31/2008A066270KOSEKRWSouth Korea10700.00375.5 192.7 12.5 6.5%1.9x30.0x NASNAP Interactive, Inc.9/30/2009STVIOTCBBUSDUnited States 0 2.2 3.4 0.5 15.6%0.2x1.2x 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 States0.5023.4 0.0 (5.6)NM-- NASohu.com Inc.9/30/2009SOHUNasdaqGSUSDChina53.242,047.5 501.0 218.4 43.6%3.0x6.9x 3,197Spark Networks, Inc.9/30/2009LOVAMEXUSDUnited States 3 51.5 47.5 10.0 21.0%1.0x4.8x 183SpectrumDNA, Inc.9/30/2009SPXAOTCBBUSDUnited States 0 6.8 0.1 (2.5)NM48.7x- 7 Tencent Holdings Ltd.9/30/2009700SEHKHKDChina 160 37,428.2 1,588.4 811.3 51.1%25.9x- 6,194 The Parent Company8/2/2008KIDS.QOTCPKUSDUnited States0.010.2 112.0 (13.5)-12.0%0.2x- 347 The9 Limited12/31/2008NCTYNasdaqGSUSDChina7.14179.3 250.6 85.5 34.1%-- 1,626 TheStreet.com, Inc.3/31/2009TSCMNasdaqGMUSDUnited States2.2267.9 67.0 1.9 2.9%0.1x1.8x 310 Tree.Com, Inc.9/30/2009TREENasdaqGMUSDUnited States8.9497.5 217.1 9.7 4.5%0.3x7.4x 700Uniserve Communications Corp.8/31/2009TSXV:USSTSXVCADCanada0.040.8 16.1 0.1 0.9%0.3x36.4x NAUnited Online Inc.9/30/2009UNTDNasdaqGSUSDUnited States6.97589.6 996.8 212.9 21.4%0.8x4.0x 1,469UOMO Media, Inc7/31/2009UOMOOTCBBUSDCanada04.3 0.8 (0.4)-54.2%6.0x- NAValueClick Inc.9/30/2009VCLKNasdaqGSUSDUnited States10842.1 545.7 130.8 24.0%1.3x5.2x 1,189VOIS, Inc.6/30/2009VOISOTCBBUSDUnited States09.1 0.0 (1.0)NM-- 4Webzen Inc.9/30/2009WZENNasdaqGMUSDSouth Korea3.0035.6 23.0 2.5 11.0%-- 328Wizzard Software Corporation9/30/2009WZEAMEXUSDUnited States0.4021.4 5.2 (3.9)-76.4%4.4x- 110Worlds.com Inc.9/30/2009WDDDOTCBBUSDUnited States0.052.4 0.1 (0.6)NM33.2x- 1Wyndstorm CorporationNAWYNDOTCPKUSDUnited States0.040.7 NA NM NM-- NAXING AG9/30/2009O1BC XTRAEURGermany32.41250.2 62.5 16.9 27.0%3.1x11.5x 266YD Online Corp.12/31/2007A052770KOSEKRWSouth Korea6970.0087.6 57.4 12.4 21.6%1.6x7.6x NAYnk Korea Inc.12/31/2008A023770KOSEKRWSouth Korea3570.0016.0 11.9 1.3 10.5% - - NAHigh37,428.22,002.6811.368.2%48.7x36.4x6,194Low0.00.0-84.0-98.9% - - 1
Average830.3165.541.35.6%5.9x10.2x906
Median39.554.02.111.1%1.9x7.6x252
 
Figure 1. Web 2.0 Universe Summary Source. Capital IQ 
 
 Page 3
CAPITAL MARKETS ACTIVITY (M&A AND FINANCING)
Transaction volumes and values keep pace in second week of December:
Total transaction value in the Web 2.0universe for December-to-date is $132.4 million (compared with $68.8 million at this time last week). The number offinancings stands at 13, averaging $10.2 million each (vs. seven financings at an average $9.8 million per deal at this timelast week). In comparison, total capital raised in November was $203.4 million, averaging $11.3 million (18 deals); Octoberwas $171.3 million, averaging $6.3 million (27 deals); and September was $232.8 million, averaging $9.0 million (26deals).
Financing Activity Last Twelve Months
6.57.16.66.214.24.95.67.69.06.311.310.26.70.050.0100.0150.0200.0250.0300.0350.0400.0Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09
   (   U   S   $  m   )
0.02.04.06.08.010.012.014.016.0
   (   U   S   $  m   )
TotalAverage*May-09 includes $200m FB investment
 
Figure 2. Financings, Last Twelve Months Source. Company reports 
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