BUSINESS BLOGS
BUSINESS BLOGS
category: business
13 Mar 2008

Kara Swisher - who is pretty much at the epicenter of any and all rumors (not a knock) - publishes some interesting financials on the Bebo sale to AOL:

According to the several sources who were privy to Bebo’s financials, for example, Bebo’s revenues for 2006 were only $7 million with $3 million in EBITDA (earnings before interest, taxes, depreciation and amortization). In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA.

For what it’s worth, that is a very healthy growth rate, but what happened to the margins?

This can be explained by further investment in infrastructure and keeping up with the growth rate (Valleywag mentioned their down time, for example, leading all social networks).  After all, the fact that this company did not exist 3 years ago is very impressive.

She continues:

Using 2007 results, that means AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.

AOL might assert that it makes Bebo a bargain, given Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft last year. Still, Facebook has a huge presence in the U.S. and is growing strongly in Europe, including being just ahead in Bebo’s strongest territory in the U.K.

Projecting outward, the company estimated–remember, these are not actual numbers, but a best guess by Bebo execs–it would have $50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009 and $193 million in revenue and $92 million in EBITDA in 2010.

I am pretty wary of any company’s projections.  Everyone wants to see a hockey stick, and it’s not very hard to deliver that using Excel. Regardless, here is the projected growth rate and impact on the margins:

Of course, if Bebo was looking at strolling towards an IPO, then they need two things:

- $100M in revenues, and
- the hockey stick.

Let’s look:

I am not saying that Bebo could not have hit these… but realistically… those are massive upticks in growth… and in the social media space, they are unfounded.

Kara continues:

While potential is important, the high price (which was still lower than the $1 billion and above that Bebo might have fetched even six months ago) and its small presence in the U.S. was the reason several companies passed on acquiring Bebo–including News Corp., Google, Yahoo and CBS, said sources close to each of these companies.

Indeed, clearly AOL is buying for the growth.  See our commentary on the deal here.

Connecting the dots, both SAI and Giga Om talk about the price AOL paid per user:

- Bebo sold to AOL this morning for $850 million and have about 40 million users, costing $21.25 per user.

- In July 2005, News Corp. purchased the parent of MySpace for $580 million. At the time, MySpace had about 21 million users, costing $27.62 per user.

- Those are as direct as we can make it, but let’s say we bring out a crazy deal where the buying company admitted they overpaid. When eBay shelled out $4.1 billion for Skype, it paid about $52 per user.

    I think historical prices and benchmarking Bebo to MySpace and Facebook - 3 and 1 year later - is unfair.  Ultimately the Bebo crowd did not need to sell… but at $850M the offer was sound and AOL - despite the haters - remains a pretty solid media company.  It just needs to do some soul searching.  Here are some options for AOL.