Another earnings season is behind us, and while it’s clear that more and
more Internet companies are crossing over the line into profitability, most
continue to operate at a loss.
Yet is seems hardly a quarterly report goes by without a company trumpeting
record revenue growth. Indeed, failure to at least double revenues over the
year-ago quarter can send a younger company’s stock into a tailspin, for
investors seeking the unlimited growth opportunity promised by the Internet
tend to recoil from anything hinting of a plateau.
Even mature companies face incredible pressure to maintain healthy revenue
growth. That’s one of the reasons, I believe, why shares of networking giant
Cisco Systems were
down in Wednesday’s trading despite Q3 revenue growth of 55 percent over the
year-ago quarter, which slightly topped the 53 percent growth rate in Q2.
The company also warned that parts shortages could hurt sales and earnings
going forward.
Cisco’s revenue growth numbers may lack that extra digit expected of
Internet companies, but make no mistake: CSCO is far and away the revenue
leader among all Internet companies. Its $4.9 billion in Q3 sales is nearly
three times the $1.8 billion in recent quarterly revenue reported by
runner-up America Online.
After that, there’s a huge dropoff to the No. 3 revenue-generator, online
retailer Amazon.com, which had
$574 million in revenue for its most recent quarter.
The next three companies may come as a surprise to those who expected Yahoo to grab the No. 4
slot. Below is a list of the top 10 Internet companies ranked by recent
quarterly revenue, along with their current valuations as multiples of
trailing 12 months’ revenues:
| Company | RQR | Market Cap | Valuation |
| Cisco Systems | $4.9 billion | $409 billion |
24.4x TTM |
| America Online | $1.8 billion | $124.4 billion |
19.7x |
| Amazon.com | $574 million | $17.7 billion |
9.2x |
| E*Trade Group | $407 million | $5.6 billion |
5.7x |
| priceline.com | $314 million | $7.4 billion |
10.0x |
| IDT | $276 million | $1.1 billion | 1.1x |
| Yahoo! | $228 million | $62 billion | 88.6x |
| MarchFirst | $227 million | $3.1 billion |
5.2x |
| PSINet | $223 million | $3.3 billion | 5.0x |
| EarthLink | $219.7 million | $2.8 billion |
3.4x |
One thing jumps right out as you look at the valuations: Yahoo is
considerably overvalued compared to other revenue leaders. Cisco is a
distant second, though a recent Barron’s report concluded that the 800-pound
gorilla of the networking equipment market is too pricey, another reason the
market isn’t swooning over the company’s recent quarterly.
