Trading multiples for large cap Internet stocks have shrunk steadily since 2004. The average EV/EBITDA multiple for large cap internet stocks was 28.9 in 2004, falling to 8.1 YTD in 2009.
Multiple declines in 2008 and 2009 have been driven by a weak economy and overall market multiple compression as the economy started to decline in 2008 and credit markets froze heading into 2009.
While the 15 times EV/EBITDA multiple averaged in 2006 and 2007 is still strong, reflecting expectations of continued above-average growth rates and returns, it is well below the 30-times achieved in 2004 after several years of impressive growth rates from internet companies, which consistently was well into the double-digits.
Over the next year we expect multiples to return to double-digit levels as the economy stabilizes and internet companies outperform traditional media companies.
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