Mobile Internet exits explode 700% to $94B (here are the 9 hottest sectors)

Mobile Internet exits via IPO and acquisition skyrocketed to $94 billion in the last 12 months, according to a new Digi-Capital report (free summary; full version) led by the hottest sectors: messaging, games, and social networking.

That’s a 700 percent boost.

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No, it wasn’t all WhatsApp. And, yes, investors are making a very tidy chunk of change indeed.

“The massive Facebook/WhatsApp acquisition made the biggest splash, but a hot IPO market took 39 percent of all exits (50 percent excluding WhatsApp),” says Digi-Capital managing director Tim Merel. “While these big numbers are all impressive, the exit returns … are even more so. Nine mobile Internet sectors returned up to 15.6X all the money invested in them over the last three years.”

The growth is a startling jump not just from the previous 12-month period, but from the full previous two years, which saw exits in the $9.3 to $13.7 billion range.

Digi-Capital defines the mobile Internet space as companies that are all or substantially mobile in nature. The company’s ranking of the current 32 billion-dollar-plus mobile Internet companies, including names such as Twitter, LINE, Square, and Kabam, will give you a taste of the sector, which has seen over $19 billion in investment over the last year and which is projected to hit $700 billion in revenue by 2017.

WhatsApp did drive messaging to become the hottest category, but games and social networking were not far behind.

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A free summary (48 pgs) and a full paid version (538 pgs) of Digi-Capital’s
Mobile Internet Investment Review are available on VB Insight

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“Five mobile Internet sectors delivered over $5 billion total exits in the 12 months to Q3 2014,” Merel says. “Another nine sectors saw over $1 billion total exits.”

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The five over $5 billion are:

• messaging ($25.8B, or $4B excluding WhatsApp)
• games ($18B)
• social networking ($17.7B)
• food & drink ($7.7B)
• lifestyle ($5.1B)

And the nine over $1 billion include:

• utilities ($3.3B)
• music ($3.1B)
• enterprise mobility/B2B ($2.4B)
• finance ($2.3B)
• advertising/marketing ($1.7B)
• travel/transport ($1.3B)
• photo & video ($1.2B)
• navigation ($1B)
• mobile commerce ($1B)

Investors have more reason to rejoice than simply the massive dollar value of these mobile Internet company exits, however. That’s because the more important numbers, their exit returns — the value of cash raised in IPOs or acquisitions — are positive. Across all 27 mobile Internet sectors Digi-Capital tracks, that return rate was 3.5X.

Respectable, but nothing to write mom about.

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The best categories, however, had much better returns — up to 15.6X cash invested.

“The nine best mobile Internet sector three-year exit returns to Q3 2014 were navigation (15.6x), messaging (15.4x, or 2.7x excluding WhatsApp), social networking (15x), lifestyle (11.4x), games (9.9x), appstore/distribution (9.1x), food & drink (6.7x), music (4.4x) and entertainment (3.5x),” Merel told me via email.

In addition, with the massive bump in exits in the past 12 months, short-term return on equity across all 27 sectors accelerated dramatically, Merel says, to 4.9X. Savvy investors — or lucky investors — who specialized in the hottest categories could have seen staggering one-year returns of 36.9X over that period, although typical investment time frames are longer, of course.

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While this past 12 months has been hot, Merel says the good times are likely not over.

“After a bountiful year for mobile Internet investors, our analysis indicates the next 12 months could be even more rewarding.”