How long does it take for Internet companies to get public and what kinds of growth rates are required? I often see this exercise performed for SaaS companies where metrics are fairly standardized, but it gets more complicated for the diverse array of Internet companies. Still, it's still worth doing the exercise to see what we can learn. Below is a "Years to IPO" chart across my usual sample set of Internet companies.
I focused mostly on companies that went public after the year 2000. Thus, I removed eBay (1998), Amazon (1997), Yahoo (1996), EA (1989), Activision (1993), Take-Two (1997), and several others. The overall median time for when a company is founded to when it goes public is 8 years. The social high fliers took about that long, though they were all mega-IPOs and may have been able to go public sooner if they wanted to. Marketplaces took the longest to get public with a median time of 9 years. Many of these marketplaces took years to really get off the ground and they also grew up in a much drier fundraising environment. Ecommerce varies quite a bit, with some online retailers taking 10+ years to get public while rocketships like Zulily and Groupon did it in just a few years. Digital Media / Gaming is similar to ecommerce, though I couldn't include several important companies since they went public in the 80s/90s. Travel would be barren if I kept to my criteria since both Expedia and Priceline went public in 1999, and TripAdvisor was technically a spin-out from Expedia (and I also label it as a marketplace company).
Let's now look at the revenue growth of these different categories leading up to IPO. The charts below show revenue growth 3 years prior to IPO (where data is available), as well as growth in the year of IPO and then a year following the IPO. This range should give us a good sense for general growth trends in the time period that we are interested in.
Nothing shocking here. Facebook, LinkedIn, and Twitter all had 100-200% annual growth 1-2 years prior to IPO, and continued to grow well afterwards.
Looking at the top of this chart, the faster growers leading up to IPO were Lending Club and Yelp. Trulia and Zillow were also growing close to 100%, and then actually accelerated post-IPO. It's no surprise that these two companies were actually some of the best performing IPOs of their era. Other marketplaces fall into a surprisingly narrow range of 30-80% annual growth, and most are relatively stable save for a few spikes and drops here and there.
Ecommerce companies are some of the fastest growing businesses known to man. I had to cut off the y-axis just to make this more viewable. Groupon did $15M revenue in 2009, $313M in 2010, and $1.6B in 2011! That's 2058% growth followed by 415% growth. Zulily also hit 674% growth 2 years prior to its IPO, and FitBit rocketed to over $1B of revenue in just a few years. Others like RetailMeNot, GoPro and Zalando also look similar. Naturally, these businesses are difficult for public market investors to value which is evident in the roller coaster stock price performances. They tend to explode out of the gates in terms of valuation, but then get crushed when growth stagnates.
Media and gaming companies have some commonalities with ecommerce. That might be because these companies are selling goods or services to consumers just as ecommerce companies would, but those good and services just happen to be digital. Pretty much every company above experienced meteoric growth at some point. This rings true for all the gaming companies (King, Glu, Zynga), as well as Google and Pandora. Netflix is the only exception since they went public when they were small in 2002, but we all know how Netflix's story evolved from there.
I couldn't do the same type of chart for travel since Expedia and Priceline went public in 1999 and there is limited data, and TripAdvisor was plotted above with marketplaces. Kayak fits better with the analysis (they went public in 2012 and were acquired months later by Priceline). I instead plotted the general growth rates of these companies throughout the 2000s.
It's interesting to see the range of growth rates and IPO paths that Internet companies can take. Some companies take a long time to get off the ground and trot along until they public, while others explode out of nowhere. Each company has its own unique story and circumstances so it's hard to glean any hard and fast rules, and this analysis doesn't take into account other important metrics such as scale, market dynamics, profit margins, etc. What is clear is that the public markets value high growth and huge market opportunities, and any company that exhibits those characteristics will be met with enthusiasm, at least until growth falters.