Friday, February 27, 2009

The end of Eyeballonomics?

Reading the details of President Obama's proposed budget makes clear that the Reganomics era has ended. By extension, I have been thinking about the tight economic environment and one of the key measures for valuing consumer facing internet companies, EBV (EyeBall value).

When coming to an appropriate value metric for companies aggregating an audience, but not yet producing revenue, many bankers and VC's have used comparable valuation metrics that have been EBV centered. Components of formulas counting total eyeballs, active eyeballs, and eyeball turnover were matched with an X factor to arrive at a professional number that had the underpinnings of relativity (if company X is worth Y, with 1mm eyeballs, our EBV is Z) at its core.

Perhaps, a great franchise such as Facebook, or an emerging one such as Twitter will breakthrough EBV and into more traditional P/E or Enterprise value/Revenue metrics. If they do, they just may find a disconnect between the derivative valuation of EBV and traditional valuation metrics.

I suspect a sustained capital constrained environment, coupled with great pressure on CPM's will fundamentally alter the eyeball aggregation metric as a way for the masses to realize sustained shareholder returns.

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