Bebo: By the (Not So Big) Numbers
What’s AOL getting for its $850 million in cash to purchase of social-networking site, Bebo?
A very attractive social-networking service and a very experienced exec who has been running it.
But, perhaps more importantly for those who focus on pesky numbers, not a whole lot of revenue and negligible profits, judging financial information I got a gander at, courtesy of sources at several companies that looked at funding or buying Bebo.
And the rest of the overall outlook for Bebo? A small but growing business, with nice user engagement with strong page views and minutes spent per session, but little traction beyond Britain and Ireland, and too small a presence in the critical U.S. market.
(Bebo is also strong in New Zealand, but BoomTown does not have to point out that that country is not exactly the kind of game-changer that AOL CEO Randy Falco mentioned in his email to the troops about the purchase.)
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.
Using 2007 results, that means Time Warner’s (TWZ) AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.
AOL might assert that it makes Bebo a bargain, given that Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft (MSFT) 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.
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. were the reasons several companies passed on acquiring Bebo–including News Corp. (NWS), Google (GOOG), Yahoo (YHOO) and CBS (CBS), said sources close to each of these companies.
On the plus side, users do spend a lot of time on Bebo, engaged by its more robust content offerings, such as its “KateModern” series (which I wrote about here), and its elegant and content-rich offering, which has some of the cleanness of a Facebook and some of the flash of MySpace.
In addition, in Bebo’s president Joanna Shields (pictured here somewhat awkwardly shaking AOL CEO Falco’s hand and with AOL President and COO Ron Grant), AOL gets an experienced and savvy Web exec, which it desperately needs these days, given the flux there.
Shields has worked at RealNetworks and Google and she will continue to run Bebo and report to Grant. In fact, Shields has effectively been running Bebo for a while now, and its founders Michael Birch and Xochi Birch will be leaving the company.
You can see Shields in action in this video, which I did while visiting London last summer:
Comments
Besides a great exec like Joanna Shields, AOL/TW also gets a new platform for content delivery and distribution. Bebo has proved itself, IMHO, as a great integration of social networking and entertainment channel.
Posted by Chris Lynn at March 13th, 2008 at 11:04 amChris:
But not, I daresay, on the cheap. Also, it does have AIM and other important platforms it ignores.
Posted by Kara Swisher at March 13th, 2008 at 11:10 amnext up: hi5.
Posted by dave mcclure at March 13th, 2008 at 12:21 pmKara:
Wondering how much was paid to produce “Prom Queen” or “Quarter Life.” I think Bebo’s “Kate Modern” has higher viewership and engagement than those two “successes.” With more interactive dramas already in production, Bebo could serve up some hit shows with their platform. Again, you are right: It’s potential and AOL has negelected several properties.
AIM is def a property that could use some development. One tip: open up, so enterprises can integrate it.
Can you buy a fancy movie theater to keep people from seeing the half leased strip mall in the back?
Posted by Chris Lynn at March 13th, 2008 at 1:15 pmIts interesting to try and justify big-ticket acquisitions like this by claming the CEO adds material value. I’m not an M&A guy, but this seems patently absurd to me. First of all, her salary is already built into Beebo’s operating expenses, so its value would be automatically discounted if AOL used used an earnings multiple for valuation. But most of her comp is probably already on the balance sheet since she probably makes very little in salary and has a lot of unvested options. Another way to look at it is to estimate her market value. Assume Shields spends a generous 25% of her time on AOL business and she’d cost AOL a generous $5M/year in total. comp. That puts her market value at $1.25M, or 0.15% of the total valuation. Anyway you slice, this argument seems highly suspect.
Posted by pablo san jose at March 13th, 2008 at 1:36 pm