On Thursday, AOL announced plans to acquire social networking site Bebo for $850 million in an attempt to be competitive in the social networking industry. While most articles are gushing over the massive return on Bebo, Kara Swisher of All Things Digital is one of the few journalists reporting on the actual revenue numbers. In 2006, Bebo pulled in a $7 million with $3 million in EBITDA, or earnings before interest, taxes, depreciation, or amortization – in other words, earnings before non-operating expenses. In 2007, the numbers increased, but it was nothing to write home about: $20 million in revenue, $5 million EBITDA.
Internally, Bebo is reported to be projecting major growth over the next two to three years. By the end of 2008, earnings are estimated at $50 million revenue, $10 million EBITDA, and are projected to grow to a whopping $193 million in revenue, $92 million EBITDA by 2010. To put this in perspective, Swisher writes, the acquisition will pay Bebo over 42 times its most recent (2007) revenue and 160 times the EBITDA.
But recent statistics show that over the past year, Bebo traffic has significantly decreased, attracting only 1.15% of social networking visits in the United States. When compared to its better-faring peers, MySpace attracts 67 times the percent of social networking visits as Bebo, and Facebook attracts 11 times the share. The statistics also reveal some good news for Bebo – for example, the site’s visitors spend more time there, on average, than either MySpace or Facebook. And while U.S. traffic may be down, Bebo maintains a powerful presence in the U.K. and Europe, which boasts a majority of users.
While AOL may be able to tap Bebo’s potential, it comes down to the execution, an area AOL has struggled with in recent history. Fortunately, the merger includes not only the acquisition of the world’s fourth-largest social networking site (behind MySpace, Facebook, and MyYearbook, respectively) but also of its experienced, accomplished leader, Bebo president Joanna Shields. It remains to be seen whether the Bebo acquisition will be seen as a costly misstep or AOL’s first move in an aggressive play for social networking power.
Another item to take note of is that this comes soon after the heels of AOL pulling their funding from Lat34.com a popular action sports social network. Almost exactly one year prior to the Bebo acquisition, Transworld magazine reported on the LAT34 issue, here is an excerpt from the article:
"AOL changed its overall business model, transitioning into free e-mail, software, and other features for consumers, with an advertising-supported base. “There aren’t any specific initiatives or efforts that took priority (over Lat34), it was just part of the overall change in direction,” says Alysia Lew, AOL corporate communications."
Watch out Bebo!
Sources
- Jones, K.C. (2008). "Bebo Traffic Down, Brand Up Ahead Of AOL Acquisition" http://www.informationweek.com/news/showArticle.jhtml?articleID=206903795 [Date Retrieved: March 15,2008].
- Ho, David (2008) "AOL adds Bebo to expanding network" http://business.smh.com.au/aol-adds-bebo-to-expanding-network/20080314-1zj5.html [Date Retrieved: March 15, 2008].
- Swisher, Kara (2008) "Bebo: By the (Not So Big) Numbers" http://kara.allthingsd.com/20080313/bebo-by-the-not-so-big-numbers/ [Date Retrieved: March 15, 2008].
- Smith, Lisa (2008) "EBITA: Challenging The Calculation" http://www.investopedia.com/articles/analyst/020602.asp [Date Retrieved: March 15, 2008].