MySpace FacebookBebo

With thousands upon thousands of social networks already launched, and more coming in the ongoing social network wars what are reasonable valuations? Is this irrational exuberance? Will the companies that buy them ever make their money back?

  1. MySpace was acquired by News Corp for $580m in July 2005.
  2. Facebook sold 1.6% of its shares to Microsoft for $246m in October 2007.
  3. Bebo is being acquired by AOL for $850m, the announcement went out today.


MySpace

  1. MySpace has 110m users, as of January 2008, according to this article.
  2. MySpace signed a $900m deal with Google in August 2006, to allow Google to place ads on MySpace. Additionally, MySpace was expected to generate $800m (unconfirmed) in revenue in 2007, according to a ZDNet article.
  3. So, even with 300+ employees and data center overhead, I think News Corp made a steal acquiring MySpace for $580m. Not only has News Corp already made their money back, but MySpace also makes News Corp money in other parts of the company — synergy.
  4. However, MySpace and Google have to do a better job at monetizing their eCPM, and increasing MySpace’s architecture efficiences for it to pay off for Google.
  5. If MySpace’s revenue was really $800m in 2007 and increases in 2008, let’s play with the numbers a bit. Let’s say their net income was $200m in 2007. With a P/E ratio between 25-50 that would give them a market capitalization of about $5b-$10b.

Verdict

  1. Google overpaid – at about $3/user per year ($900m for 100m users for 3 years with no ownership in MySpace) so MySpace has to make Google more than $3/user per year. Not happening. This may turnaround, but Google probably overpaid.
  2. News Corp underpaid – at about $27.62/user ($580m for 21m users) in July 2005.


Facebook

  1. Facebook has 60m users, as of January 2008, according to this article.
  2. Facebook has taken their injection of money from Microsoft (and other VCs) and gone on a hiring spree. They have hired some top talent from Google as well as others in the Valley. Facebook has about 450+ employees, and expects that number to increase to 1000 at the end of 2008!
  3. According to their CEO, they expect to generate about $150m in revenue in 2007 and hope to reach $300m in 2008. However, they expect capital expenditures to reach $200m in 2008.
  4. Previously, I had calculated a rough Facebook valuation. The numbers still seem about right. Their market capitalization is not yet worth the widely reported $15b. If their net income in 2008 is $100m, with a P/E ratio of between 25-50 that would give them a market capitalization of about $2.5b-$5b.

Verdict

  1. Microsoft overpaid – at about $288.46/user ($15b valuation for 52m users) in October 2007.



Bebo

  1. Bebo is ranked high among social networks and has significant traffic and about 40m users.
  2. Bebo is getting $850m from AOL.
  3. Their revenue in 2007 was $20m and a projected $50m in 2008. If their net income in 2008 is $15m, with a P/E ratio between 25-50 that would give them a market capitalization of about $375-$750m. And they are still expected to grow.
  4. They have 100+ employees. Two of the co-founders are expected to leave. As long as the current CEO and top talent stay, Bebo continues to execute well, and AOL does not tamper too much with Bebo, then AOL may have made an excellent purchase.
  5. AOL can use Bebo to “synergize” with their other websites and ads just like News Corp did with MySpace.
  6. As long as AOL doesn’t tamper with Bebo, itself, they should be fine. More Bebo numbers can be found here and here.

Verdict

  1. AOL fair deal – at about $21.25/user ($850m for 40m users) in March 2008.