Michael Arrington over at Tech Crunch asks: how much is Photobucket worth?
Lehman Bros., who has been hired to sell the Colorado-based photo sharing service, says the answer is $300-400M. We could say it makes sense because MySpace parent Intermix sold for $580M, and then it grew 200% (or tripled) the next year as part of News Corp.’s Fox Interactive Media. YouTube, the next explosive startup, went on to sell to Google for $1.65B. See our Top 10 Most Explosive Web Startups of All Time here.
We get the trend: eyeballs are valuable. Social networking scales. Images are cool. But does that mean Photobucket is worth $300-400M.
Let’s see.
As a photo-sharing service, Photobucket is both less and more vulnerable to the vagaries of social networking advertising, pegged to reach $2.5B by 2010. While Photobucket is less of a legal liability than YouTube, and less chaotic than MySpace, it is a much smaller site: with 36M registered members and 17M unique users per month, the site is 1/3 the size of MySpace when measured by members and 1/3.5 when measured by unique users. It also boasts 1/2 of YouTube’s unique users, according to Compete.com’s February 2007 numbers. Photobucket is in an enviable position, a lot of people use it as their photo bucket of choice, but images, compared to video, are not as valuable a media.
It’s important to note MySpace, because advertisers like to anchor, or juxtapose, media properties to justify ad spend. Indeed, Photobucket has seen a sharp rise in revenues, from $4.35M in 2005 to $9.34M in 2006. On the surface, this seems great, but in 2005, in my last year of VP of ad sales for an online publisher with 5M unique users, my team of three (including me) did $3-4M in revenue.
I am not saying this make myself look important or to put Photobucket down, I am just reminding everyone to put things in perspective. Photobucket was then and now much larger, granted, but it only scraped $4.35M in revenue. Social networking, while great for growth, is not a winner in revenue generation.
If it were, the investment bank would have an IPO mandate, and not an M&A one. Oh, my old company fetched 12 times EBITDA and sold for $13.5M, or a puny 3.5 times revenue (can you tell I was not in charge of the sales process of the company?).
What I have a major problem with, is the anticipated growth of the company’s revenues. Let’s dive in.
Judging by the numbers, the company grew 116% in revenue from 2005 to 2006, but now expects to grow 255% from 2006 to 2007. Is this normal, reasonable?
Let’s see, judging by this Barron’s post:
Pali Research analyst Richard Greenfield today raised his earnings estimates and price target for News Corp. Greenfield writes that MySpace is now generating “in excess of $30 million” a month in revenue, with about $24 million in domestic revenue and $6 million internationally. He adds that monthly revenues should more than double over the next 12 months, and “at very high incremental revenue margins.” So in 12 months, he’s saying, MySpace should be doing more than $60 million a month in revenue, for an annual run rate in the neighborhood of $750 million a year.
Great. MySpace, the largest social networking site, will double in revenue over the next 12 months. That means 100% growth. Usually the outliers experience above average growth. Can someone explain to me why Photobucket will experience 2.55 times, or 255%, growth in the same period?
Lehman Bros. is good, darn good. But do they believe this or do they think we lost our calculators?
Let’s consider one more thing:
Throughout 2005, from Q1 to Q4, sales tripled, from $356K to $994K, for a growth of 179%.
Throughout 2006, from Q1 to Q4, sales doubled, from $1.086M to $2.159M, for a growth of 98%.
Why on earth should we believe that sales will now triple from Q1 to Q4 in 2007 from $3.114M to $9.486M, for a growth of 204%?
I know what you’re thinking: social networking is accelerating. Ad dollars are rising. Sure, that’s why MySpace will see revenue rise by 100% over 12 months, that does not, in any shape form or fashion justify these numbers that call for a 255% rise in revenue from 2006 to 2007, or a rise of 204% from Q1 to Q4 2007…
The most suspicious growth number, frankly, is the 339% year over year growth from Q4 2006 to Q4 2007, after it grew 117% from Q4 2005 to Q4 2006.
Oh, may I add one last thing: MySpace has FIM and News Corp.’s sales machine, the same machine that pushed me out after it bought the company that bought my company where I served as VP of Ad Sales… Photobucket? Not quite.
So what is Photobucket worth? We’ll disregard the 2007 figures because we do not think it’s realistic, and if it were, the company is better off remaining independent and selling next year.
Looking at 2006 numbers, where the company made $10M in revenues and breaking even, then the company is probably worth, at the most aggressive range, $100M, which is 10 times Revenue. Google trades at 13 times sales, Yahoo! at 7 times sales (though Yahoo! has a richer p/e), so take the average there, which is 10.
Clearly, there’s more than revenue here, it’s a growth story, but the growth in revenue won’t be what it outlined here, trust me. And, sure, the eyeballs are worth it, but there is nothing all that defensible. Even if you want to value the company in terms of eyeballs, then it can be worth $125M or $200M if you really buy into this space, but even then, find me someone who will pay $200M - let alone $300M - and more for this company, cause I want to short their stock. MySpace and YouTube are in the social fiber now, they’re referenced at the Oscar’s; Photobucket, not quite. The article in Fortune that got things and people excited, after all, bills it as the largest site you’ve never heard of. Nice.
Social networking won’t go away, neither will user generated content, but let’s not kid one another, monetizing it is much harder than anyone can imagine. Mainly, there is nothing all that defensive about any of them.
If Photobucket thought differently, they would not be up for sale… Had they not hired Lehman Bros., Photobucket could have continued to chart its own course and grow nice and steady, but by hiring an investment bank which whispered some pretty lofty numbers, I expect a repeat of Metacafe, which had to shelf its sale plans when no buyers emerged. And Valleywag is right, since when do investment bankers do their road show via Tech Crunch?
History always repeats itself. This time won’t be any different. Distribution has become a commodity; Content wins in the end, when you actually own it.
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March 29th, 2007 at 6:23 pm
[…] For more skepticism about Photobucket’s price tag, see: HipMojo Valleywag […]
March 30th, 2007 at 9:36 am
[…] Hipmojo.com called Photobucket out for it’s questionable growth predictions and attendant valuation goals: Judging by the numbers, the company grew 116% in revenue from 2005 to 2006, but now expects to grow 255% from 2006 to 2007. Is this normal, reasonable? …. […]
April 2nd, 2007 at 4:16 pm
[…] Commentators at ValleyWag, HipMojo and the Daily Deal’s blog doubt that PhotoBucket can sell for as much as $400 million. Blogger Simon Brocklehurst, on the other hand, sees potential for an even higher price. “If pushed into it by a bidding war, I’d say that someone might be prepared to pay north of $600M - maybe even up to a $1B,” he writes. […]