BUSINESS BLOGS
BUSINESS BLOGS
category: business
22 Jun 2007
related tags: Internet & Web | M&A | Search Wars | Business.com |

This morning I woke up and got a bad feeling that we were back in crazy times.  The WSJ ran a story about how Business.com was about to get the last laugh in a sale of the company for $300-400M.  Insanity, I thought.  After all, insanity means doing the same thing but expecting a different outcome.  It’s a pillar of the current Administration, some would argue.

But what is different this time around, is that it’s not simply a URL that is being sold, there’s an actual business there. 

After all, indeed when Business.com (the URL) was bought for $7.5M, the joke was that the site would not generate $7.5M in its lifetime to pay back for the purchase.  Then again, the URL was bought at the tail-end of the first boom, which was subsequently followed by a period of anemic ad revenues and lukewarm digital prospects.

But because of that, search advertising took off, and with it did the value of generic URLs.  We looked at this ecosystem way back, here.  Business.com became a beneficiary both of direct navigation traffic and revenue but also built up its directory and pay-per-click business.  It even raised $10M in financing.  One would have thought: more madness!

But, to give credit where credit is due: the company today reports EBITDA of $15M, which would imply a 20 times P/E multiple if it got $300M and is looking for $300-400M in a sale.  WSJ is running the story and seeing how DJ - parent of WSJ - is in the running, the entire thing is surreal, but then again, reading WSJ while Rupert-Gate is ongoing is even more surreal.

Mind you, at 20 times P/E, the deal would be “cheap” for Yahoo! and Google who trade at P/Es that are greater than that.  It could also be interesting for MSFT who is desperate to gain traction in paid search.  This could help them in a lucrative niche vertical that is not going to get smaller in 1, 2, 5, years.  And, to boot, the same WSJ article states that Business.com’s traffic grew 50% in the first two quarters of 2007 year-over-year compared to 2006.

Now this could mean three things:

1 - The investors and founders have been at it for 5-7 years or so and want an exit, which is to be expected…

2 - But it could also be a hedge against the inflation in CPC prices in search advertising.  We’re seeing a lot of advertising shy away from search advertising… and I personally think that at this rate, when it’s said and done, Google will own this market, if it does not already.  Bottom line: sell high.  I am not sure this is really the case, since paid search will continue to grow and remain the largest slice of the online ad pie, though it will grow slower than video and display ads.

3 - Old media is really looking for online growth and they will pay a premium whereas new media ones already in the space probably won’t.  As a result, the company leaks this to WSJ.com, that gets WSJ and NYT excited which in turn make YHOO, MSFT and GOOG kick the tires to protect “their market” - i.e. search.  Rupert Murdoch finds out there’s an auction going on and sends his men out to scope out the deal, too.

I just hope that bloggers, the mainstream media etc. do emphasize that there is a business here that’s for sale and not only a URL, otherwise we’re never going to hear the end of it.

Hands up, however, if you’ve never been to Business.com.  Yeah, thought so.  You can put your hands down.  You too Mr. Murdoch.