Apparently, Valleywag is reporting that Photobucket sold to MySpace and the staff will learn about it in 20 minutes at 1pm EST/10am PST.
Note that Photobucket leaked some lofty revenue figures earlier this year to test market sentiment about a price tag of $300-400M. We respectfully disagreed, mainly because those revenue increases seemed way too aggressive.
The usual suspects are commenting on this one, as they should, but in the absence of a price, it’s useless to comment on whether this was wise or not.
More comments and analysis to come throughout the day, but I will say this:
- Photobucket’s picture feature is widely more successful than MySpace’s in-house solution, and
- having learned from YouTube ending up with Google, and
- fearing Facebook’s torrid growth, I am not surprised to see Murdoch et al. buying Photobucket after they showed them who’s boss.
Reminiscent of Yahoo!/Overture Deal?
This reminds me of when YHOO bought Overture, Overture was getting most of its distribution from YHOO, and YHOO told them they could make a deal now or make a deal after YHOO pulled the plug on their deal and cut off their traffic, with revenues falling off and a reduced market cap, YHOO could buy them for cheaper after the fact.
I would not be surprised if the same thing happened here, though in less clear and bold terms.
Update 1: Matthew Ingram is a bloke I usually agree with, but respectfully I think the eBay/Paypal analogy is way, way off. Paypal today drives a lot of the revenue at eBay. That’s why we put that deal as one of the best M&A deals ever on the Web. In Photobucket’s case, it never will. This is a commodity service with no - absolutely no - path to revenues let alone profits. This makes sense, but not for the reasons Matthew outlines. Regardless, check out what he says here.
Update 2: TechCrunch is reporting $250M purchase price, and says it has confirmed it with senior management.
All right, now that a price is reported, here are some thoughts:
- Last year a company with the momentum of Photobucket would have not settled for a $250M sale price, but today, with the end of Web 2.0 innocence live and loud on our doorsteps, this deal is a sign of a more sober time.
- It also shows that MySpace’s parent Fox Interactive Media is the master of the M&A, old-school style.
People can be delusional and say MySpace acted in bad faith etc., by shutting off Photobucket, but the fact is that Photobucket was violating the T&C of MySpace. Furthermore, MySpace saw an asset it wanted, instead of reaching out to Photobucket via investment bankers, it reached out to Photobucket via lawyers.
It’s not my style, but it means that MySpace bought Photobucket for $250M instead of the $300-400M Photobucket was hinting it would take to sell.
Trust me when I say that this is in fact, indeed, FIM’s modus operandi. Sometimes it pans out, sometimes it backfires. That’s all I will say.
Photobucket had very little leverage in talks, because they had unwisely whispered some numbers about revenue potential, which was aggressive, as we outlined here and with MySpace cutting off Photobucket, it would not hit those numbers and fail to attract a price anywhere near that whispered figure.
If Photobucket had leverage, they would have - like Google/YouTube against Viacom - fought back. But by agreeing to sell for $250M after asking for $300-400M, it’s a sign that the leader in a so-called Web 2.0 space (image hosting and sharing in this case) can exit and make money, but the revenue/profit path is anything but clear.
- Props to Photobucket nonetheless for…
Let’s face it, the founders, shareholders, employees etc. at PB deserve a lot of credit for taking something like image hosting and turning it into a $250M exit. They also deserve a lot of credit for doing it somewhat profitably all along, and lastly, they realize that they can really grow much more within MySpace…
Trailing 12-month P/S: 15 times.
I do not think it’s realistic to say that Photobucket sold for 10 times 2007 revenues because a) the growth rates were absurd and b) without MySpace, where would those revenues be?
For that reason, I simply look at 2006’s revenues of $9.3M and at 15 times 12-month revenues, this deal is very nice for shareholders and frankly, it’s change to someone like Rupert Murdoch who strengthens and galvanizes his social media empire.
Social networking tale of the tape:
- MySpace - personal pages: $580M in 2005.
- YouTube - videos: $1.65B in 2006.
- Photobucket - images: $250M in 2007.
What does that say? Man, that’s a post onto itself. But if Facebook is social networking of networks, how much is that worth? Food for thought.
Update 3: Interesting to see the wide spectrum of opinions circulating around the Web. Robert Scoble mentions that other photo-sharing sites, like Zoomr, will get funding. I’ve never heard of Zoomr, but generally speaking, when a #1 in one dominant sector buys a large player (especially if the #1) in another segment, I would surmise that means investors are less willing to back an upstart. Depending on the size of the industry, this can be different. But when Google (#1 in search) bought YouTube (#1 in video), I don’t recall many new YouTube clones getting funding. In this case Photobucket sells to the leader in social networking, why would any other startup have a shot at gaining traction?
Platforms only scale in value with network effects, there’s value in the IT alone, but not exponential value. Google would have only paid $33M for YouTube’s platform, the difference, called goodwill, was in the network/audience. If I’m a VC, I move away from hosted image solutions to something else, of course, I’m not a VC.
Again, more reporting and analysis to come.
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May 7th, 2007 at 1:16 pm
[…] acquisition negotiations. Valleywag has the details, with the rest of the usual suspects quivering with bloggerific anticipation, but it looks like Rupert Murdoch’s MySpace has acquired Photobucket […]