So Evernote is doing $18M a year on 750K paid users with 20 million free users. It has just turned profitable - company of the year?
Let's not forget they've taken nearly $100M of investment at a nearly billion dollar valuation. Perhaps this is my east coast conservatism, but in the average case I just can't see how this works out well for the investors.
To get a respectable exit of perhaps $4B in a few years they would have to get their revenue up to something closer to $200M/year assuming you gave them a generous valuation on 20x revenue and completely neglect profitability. Given that Evernote primarily makes money from paid users they will need to dramatically improve conversion, or somehow figure how to get 10x more users. 200 million users strikes me as unlikely, and doubling conversion while also getting 100 million users does too. It's not to say it can't happen, but I just don't see it for a paid consumer service.
Not only are they currently growing quickly, their rate of growth is increasing.
They grew from ~2M at the start of 2010 to ~6M at the start of 2011 to ~20M at the end of 2011[1]. Growth in paid customer looks to be similar.
In September they stated they are getting 40,000 new users a day[2].
200 million users strikes me as unlikely, and doubling conversion while also getting 100 million users does too. It's not to say it can't happen, but I just don't see it for a paid consumer service.
Why do you think this? The market of "everyone who has a smartphone and needs to remember things" seems pretty large to me.
I think a big part of the "company of the year" bit is because they've done something most people thought wasn't possible-- build a big business charging consumers. It's refreshing!
I don't know much about their business, but I'm guessing they are sacrificing a lot of revenue/profit for growth.
They could probably double their conversion by slowly dialing down the awesomeness of the free version in favor of the paid version. Could they do advertising/leadgen to their massive free audience? I'm skeptical, but it's a big/untapped asset. Is the data asset interesting? You never know.
They are clearly onto something-- I saw a comment here was someone said, "it's as important to me as email."
Shouldn't you narrow down "build a big business charging consumers"?
Even in just digital goods, there are general software companies (Microsoft, Intuit, McAfee), gaming companies (Zynga, EA, Valve), online dating companies (Match, Eharmony), geneology (Ancestry), health (Weight Watchers Online) that make 1+ orders of magnitude more money than Evernote.
Most of them also have freemium models. What's special here?
The interesting thing with these "freemium" companies is that there's generally a long conversion time. For many, it will take a year or more before free users covert. Each is a bit different, but last time I saw, Evernote fit that profile.
So a good way of projecting future performance here is looking at how many free users they have, and what the conversion rate has been in the past (as well as average time to convert). If they've recently picked up a lot of new free users, we should expect a significant bump in paid accounts in about a year (or whatever their average time to convert is). The freemium businesses just have a significantly different business model, and looking at the current paid accounts is often a poor indicator of future profitability. I don't know that their valuation is justified (personally, I think most valuations are high right now), but the fact that they're only "barely" profitable now probably isn't a good indicator of future profitability.
Considering the failure rate of young companies, you have a strange definition of the word "common".
Even taking failures into account, multiple-hundred percent per year is still probably pretty common. If a company doubles its revenue in a year that's a 100% increase, and that's not exactly uncommon.
Strangely, investors attempt to pick the winners, not invest in random small companies.
They look at metrics like growth rate, earnings, and cost of customer acquisition to decide what to invest in.
Google's P/E ratio is ~21 at the moment, and their share price is ~$620.
They floated at a P/E ratio of ~100, and a share price of $85. Their share price would have to drop to below $85 for it not to be good value as an investment, and they would have to drop revenue to around 1/10 the current level for them to be earning less.
Even if I accept the likelyhood that there will be some kind of recession in Europe are you really saying that Google will drop revenues by 10 times? (I'd point out that during the 2008 financial crisis it reduced their revenue by a couple of percent).
Let's not forget they've taken nearly $100M of investment at a nearly billion dollar valuation. Perhaps this is my east coast conservatism, but in the average case I just can't see how this works out well for the investors.
To get a respectable exit of perhaps $4B in a few years they would have to get their revenue up to something closer to $200M/year assuming you gave them a generous valuation on 20x revenue and completely neglect profitability. Given that Evernote primarily makes money from paid users they will need to dramatically improve conversion, or somehow figure how to get 10x more users. 200 million users strikes me as unlikely, and doubling conversion while also getting 100 million users does too. It's not to say it can't happen, but I just don't see it for a paid consumer service.