The AOL- Bebo Value transfer equation

Congratulations to the Birch's - $850m in Cash. The question is why now, just as we are told that these social network assets have jumped the shark and a steep decline in value is due, has AOL bought one?.

What was AOL thinking?

We have tried to help answer this question via the the AOL - Bebo value transfer equation below.



Anyway, Bebo has between 20 and 40m users, depending on who you believe, which means the price is roughly between $20 and $40 per user (values Facebook at c 1/10th of $15bn by the way). If you actually assume only a fraction of these are regular visitors (say 20%), thats more like $100 - $200 / active user

Now, at a (very, very generous) CPM rate of c $1.00 per 1,000 visits, and an estimated 11 billion pageviews annually, that implies an annual revenue stream of c $11m - ie the deal values Bebo at c 85 years revenues....

(And as Wadds notes, even $21/user is a heck of an ask in SocNet Adland)

Time Warner/AOL pegged the high water mark last time....do these things run in the DNA

Update - BoomTown has some numbers, following revenues of c $20m in 2007 Bebo will grow:

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.

A mere 114% CAGR - they were clearly being conservative in their guesses then

And even if you believe 2008 out-turn revenues of $50m, thats still 17 years revenue on businesses that - so far - struggle to last more than a few years!

Update 2 - it would appear (a week later) that not even all of AOL's management thought this was so smart:

The concerns of the senior executives who actually run AOL (and reportedly were not consulted on the top-secret acquisition) include: the general difficulty of making money placing ads on social networks (see Google’s missed quarter), “flattening traffic growth at Bebo” (see chart below), overly-rosy revenue projections for Bebo that might have been three times too high, and the likelihood of losing Bebo’s most talented employees (the founders are already out of there).

What we said. This is pretty basic stuff, as you can see from our 6,000 mile analysis last week, above.