Lately have been hearing lot of people talking about valuation bubble, especially in the valley and how its going to effect or already effecting Indian consumer internet companies. More so, some are also speculating that recent money being pumped by many VC’s in internet e-commerce businesses is just another butterfly effect of what’s happening in US.

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But that’s another story for yet another day. For now, let’s concentrate on the primary speculation i.e. are we or are we not riding high on yet another bubble of valuation (P/E ratio) like we did about a decade back?

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Best case scenario is the recent wave of valuation coming out from the valley: Quora $1B, Groupon $15B, Zynga/Twitter $10Bn, Facebook $50B+ – is this 2011 or 2001? – Amit Somani tweet’s.

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Even though we really can’t come to the conclusion till we live through such times but what we can do right now is play with some numbers and possibly figure out if really we are in 2011 or yet another glorified 2001.

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Today in WSJ, an insightful report with lots of number & graphs came out which would be my 1st alibi which denies the fact that we are living in 2001 of valuation bubbles. It says,

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The Wall Street Journal reported Friday that Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille, scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.

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Now, here’s another line-graph which shows yet another dataset.

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Even though some may say that times are different; but I say they are not since leverage/influence has changed from 1995 to 2010.

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So I’m siding with the fact that we are not riding yet another dotcom boom with unreasonable valuation primarily ‘coz of 2 reasons:

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1. Real Revenues – Top 3 heavy weights, namely Facebook, Zynga & Groupon have real revenues (read above) unlike companies then.

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2. Real social graph or network effect leverage – The social graph or network effect leverage is the growth driver or underlying layer which is fueling such meteoric growth.

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Now if someone asks is this growth sustainable? I say yes since all these companies are riding on real data viz,

  • Facebook – Social Graph (valuation >$50Bn)
  • Zynga – Social Gaming (valuation – $7-10Bn)
  • Groupon – Social Commerce (Post IPO valuation – $15Bn)

Now if you ask me, why the hell social is so damn important?

I would say, follow the hint: Track $GOOG.

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