AOL / BEBO deal analysis... very interesting data

The most interesting tidbits about the AOL-Bebo deal are as follows:
Bebo’s revenues for FY2006 were $7 million with $3 million in EBITDA. In FY2007, the financial results were approximately $20 million in revenues and $5 million in EBITDA. Using 2007 results, that means Time Warner’s AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.
Projecting outward, our best guess by Bebo execs would have the Company around $50 million in revenue and $10 million in EBITDA in FY 2008; $117 million in revenue and $48 million in revenue in FY 2009 and $193 million in revenue and $92 million in EBITDA in FY 2010.
As a brief overview, Bebo was launched in July 2005 and has steadily risen to become one of the world’s most popular social networking sites. Users can create profiles on the site for free, stay connected with friends, watch videos, and listen to music. In early 2008 Bebo had over 34 million registered users and 7 billion monthly page views.
Bebo’s founders have extensive experience in online social networking, having been involved in the founding and building of such companies as Birthday Alarm, Ringo, and Friendster.
Bebo is officially the largest social networking site in the UK, Ireland, and New Zealand, and is the third largest social networking site in the US behind only MySpace and Facebook.
Recent Comscore data says Bebo has 22 million unique visitors and 11 billion page views; AOL said Bebo users spend an average of 40 minutes a day on the site in a press briefing. The company claims 40 million users.
The sale will represent more than a 9x cash return for Balderton Capital, which provided Bebo with $15 million in Series A funding less than two years ago. That round gave Balderton a 15.7% ownership position (approx. $95m post-money valuation), which would work out to around a $133 million paycheck from AOL. But Balderton actually gets approximately $140 million, due to some additional provisions and entitlements contained in the investment agreement.
Bebo’s husband-wife founding team of Michael and Xochi Birch won’t be sticking around AOL for very long (if at all).
Bebo plans to soon expand into several non-English-speaking European markets
Bebo had been in the market for new funding to support acquisitions, particularly in the contextual and behavioral search markets. But that ended once acquisition offers began coming in. No comment on earlier reports that Yahoo was an interested suitor (which is now 0-for-2 on such efforts).
PRESS RELEASE BELOW

AOL To Acquire Global Social Media Network Bebo

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Posted: March 13, 2008

Filed Under: International, Products, Corporate

NEW YORK, NY, March 13, 2008 – AOL announced today that it has entered into an agreement to acquire Bebo (http://www.bebo.com), a leading global social media network. Together with its AIM and ICQ personal communications network, the acquisition will give AOL a premier position in the fast growing world of social media with a network of approximately 80 million unique users.

With a total membership of more than 40 million worldwide, Bebo is a global social media network which combines community, self-expression and entertainment to enable its users to consume, create, discover and share content. Bebo is one of the leading social networks in the UK, and is ranked number one in Ireland and New Zealand, and number three in the U.S. Its users are heavily engaged and view an average of 78 pages per usage day. Bebo has approximately 100 employees operating in offices in the UK, San Francisco and Austin, TX.

The deal comes just one week after AOL’s launch of Open AIM 2.0, an initiative that allows the developer community greater freedom to access the AIM network and integrate AIM into its sites and applications, and the announcement by Apple of a downloadable AIM application for the iPhone.

Under the terms of the agreement, AOL will acquire Bebo for $850 million in cash.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, Chairman and CEO, AOL. “What drew us to Bebo was its substantial and fast-growing worldwide user-base, its vision of a truly social web, and the monetization opportunities that leverage Platform-A across our combined global audience. This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”

“AOL understands the shifting dynamics of the Web and has clearly demonstrated its commitment to leveraging the ever-increasing power of social networks,” said Bebo President, Joanna Shields. “With one and the same vision in this area, it was a natural progression for Bebo to join AOL, and we look forward to working together to continue to expand the online social experience globally.”

“Bebo’s dynamic management team recognizes that the Internet is less about destination and more about connecting people, culture and lifestyles,” said Ron Grant, President and COO, AOL. “This acquisition supports our key objectives – accelerating the growth, engagement and monetization of one of the world’s most engaged online communities.”

Upon closing the transaction, current President Joanna Shields will continue to run Bebo and will report to Ron Grant.

Analyst eMarketer predicts that by 2011, $4.1 billion will be spent worldwide for social network advertising – a dramatic increase from the $480 million spent in 2006. In 2008 alone, global ad spend in the social networking arena is expected to increase 75% year over year, amounting to $2.1 billion (eMarketer, Social Network Marketing: Ad Spending and Usage, December 2007).

In recent months, AOL has moved aggressively to bolster its position in areas critical to its emergence as a leading advertising-supported Web media and marketing company. Building on its number one position in third party display with Advertising.com, AOL has spent nearly $1 billion on online advertising acquisitions, including market leaders like ADTECH, buy.at, Lightningcast, Quigo, TACODA and Third Screen Media to create Platform-A. Platform-A is the top display ad serving network focused on helping marketers build brands that perform online.* In Web content, AOL’s revitalized network of sites has experienced five months of consecutive page view growth and key categories like Music, Television, Moviefone, TMZ, Money & Finance, News, Living and Body are all in the top four in their respective categories.

As part of its international growth plans, AOL has launched 17 international web sites over the last year and has plans to expand to 30 countries outside the U.S. by the end of 2008. In addition, AOL teamed up with HP last September to include localized versions of the AOL.com portal and other AOL services as the default setting on HP computers shipped in the United States and around the world. Bebo, which has announced plans to launch in five countries this year, will be featured prominently in AOL’s international expansion efforts after the deal is closed.

Since its inception, Bebo has established a radical new vision for online media and engagement marketing, combining community, self-expression and entertainment, enabling its members to consume, create, discover, curate and share digital content in entirely new ways. Bebo global users have high engagement levels spending an average of 33 minutes a day on the site. Its groundbreaking Open Media platform ushered in a new way for Bebo users to experience content online, while giving global media companies like MTV, CBS, BBC and more than 400 others, a new way to promote, distribute and monetize their programming. "Engagement Marketing," is Bebo’s initiative for brands to build long-term relationships with their target audience. Today, brands from Apple to Nike use Bebo as a platform to establish ongoing conversations with consumers.

Bebo pioneered the blending of Web-native original content with interactivity in the social networking environment by co-producing "KateModern," the most successful TV show on the Web, now in its second season, followed by the soon to be premiered "Sophia's Diary," and the upcoming "Gap Year." In December 2007, Bebo opened its platform to external application developers becoming the first social network to embrace both Facebook and OpenSocial APIs. To date, more than 1500 applications have joined the network.

AOL was advised by Banc of America Securities LLC and Deutsche Bank Securities Inc. Bebo was advised by Allen & Co.

AOL and Bebo senior management will host a conference call beginning at 9:00 am ET to discuss the day's news.

The dialing instructions for the call are:

In the United States: 888-730-9143
Outside the U.S.: 210-839-8553
Passcode: AOL Update

Please dial in at least ten to fifteen minutes before the call's scheduled start to ensure you are connected in time for the beginning of the call.

Note to Editors: Photos, logos and video from today’s announcement are available on the AOL Corporate Site at http://corp.aol.com.

About AOL
AOL® is a global Web services company that operates some of the most popular Web destinations, offers a comprehensive suite of free software and services runs one of the largest Internet access businesses in the U.S., and provides a full set of advertising solutions. A majority-owned subsidiary of Time Warner Inc. (NYSE:TWX), AOL LLC and its subsidiaries have operations in the U.S., Europe, Canada and Asia. Learn more at AOL.com.

About Bebo
Bebo, founded by Michael and Xochi Birch, is the world's leading global social media network. Building on the notion of traditional social networking websites, Bebo combines community, self-expression and entertainment to enable its users to consume, create, discover and share professional and user-generated content through the Bebo website. Bebo has 11.4m unique users in the UK and a total membership of more than 40 million worldwide. Bebo also ranks as the UK's most engaging social network with users spending an average of 33 minutes on the site per usage day.**

*According to comScore Media Metrix February 2008 data, Platform-A continues to be the number one advertising network with 167 million unique visitors and a domestic reach of 90%.

Why the AOL-Bebo Deal Matters

MARCH 14, 2008


Debra Aho Williamson, Senior Analyst

Yesterday, AOL paid $850 million in cash to acquire Bebo, a social networking site that is a distant third to MySpace and Facebook in the US.

Eyebrows have been raised in response to news of the deal because Bebo's traffic levels are only a fraction of those seen at MySpace and Facebook. Bebo had 22.4 million unique visitors worldwide in January, according to comScore Media Metrix. Facebook and MySpace both had more than 100 million worldwide visitors that month.

In February, MySpace's share of US Internet visits was 67 times larger than Bebo’s, according to Hitwise. In fact, 22% of visits to Bebo last week came from people who had first visited MySpace, Hitwise reported.

Nor does Bebo seem set to add significant revenue for AOL, at least not immediately. According to financial data obtained by AllThingsD, Bebo earned just $20 million in 2007 worldwide. eMarketer estimates that advertisers spent $510 million on MySpace and $145 million on Facebook in the US alone last year.

However, Bebo has been quietly innovative in areas of online marketing that are just now starting to get attention. It is a pioneer of widget marketing, having partnered with prominent widget developers in December 2006, five months before Facebook opened up its platform.

Bebo also hosts KateModern, an online video hit. The site is developing other short-form online video content, along with unique ways of integrating marketers into the video storyline. It also has found novel ways to allow viewers to participate in the action both online (by interacting with the video’s characters on their profile pages) and offline (producers invited fans to watch the filming live last month).

Another thing going for Bebo: its users spend more time on the site than those at Facebook or MySpace – an average of 217 minutes apiece in January, according to comScore Media Metrix. That's 18 minutes more on average than was spent on Facebook, and over an hour more than on MySpace.

Information from AOL is sketchy on the details of how Bebo will be integrated into its other properties, other than statements that it will be paired up with the messaging services AOL IM and ICQ.

There can be no denying the unique ability of social networks to bring people together in ways that were previously impossible. For marketers, it is also clear that social networks provide powerful branding solutions, taking online advertising beyond banners and clickthroughs into endeavors such as community building and customer interaction.

Bebo and its social networking brethren have so far only scratched the surface of what is possible in this space. AOL obviously plans to capitalize on Bebo’s innovations and online advertisers should hope that they succeed.

Get the facts behind the social networking buzz. Read eMarketer's Social Network Marketing: Ad Spending and Usage report.

Media Buyers Give Thumbs Up To New AOL Ad Network

by Gavin O'Malley, Tuesday, Sep 18, 2007 7:45 AM ET

WITH ITS CONTINUED FOCUS ON advertising, AOL has established a new division for its ad networks--including Advertising.com and Tacoda--and named Curt Viebranz, former CEO of TACODA and a one-time Time Inc. executive, to lead it. The unit, called Platform A, will reach an estimated 90% of Web users. AOL also announced that it's moving its headquarters from Dulles, Va. to the media capital of the world--New York City. "Over the past eight months, we have put together a network with unprecedented reach and state-of-the-art solutions," said Randy Falco, Chairman and CEO of AOL. Platform A will encompass Ad.com, the direct-response network AOL acquired in 2004; Tacoda, the behavioral ad network it recently bought for $275 million; the video ad network named Lightningcast; Third Screen Media, a mobile ad network, and AdTech AG, an international online ad-serving company based in Frankfurt, Germany. "With the launch of Platform A, we are unleashing this powerful network to deliver unrivaled transparency and return on investment for our marketing partners," said Falco. Viebranz has been named the president of Platform A--while Mike Kelly, president of AOL Media Networks, is leaving the company. Lynda Clarizio will continue to head up Ad.com, and Kathy Kayse, senior vice president of sales at AOL Media Networks, will now run AOL brand advertising. Dave Morgan, who was rumored to be getting a new title with within AOL, will hold on to his position as chairman of TACODA. Media buyers were positive on the news, adding that AOL's recent spate of ad network acquisitions would have been pointless without their eventual integration. "It wouldn't have made sense otherwise," said Steve Ustaris, group media director at Aegis Group's Carat Fusion. "This will make it much easier to manage inventory." The reorganization comes amid criticism that AOL has so far failed to meet some media buyers' expectations, and less than two months after parent company Time Warner released slower ad growth numbers for AOL--news that sent its stock price down 3%. Still a force to be reckoned with, AOL has plenty of admirers in the agency world. "They've done a good job responding to sales leadership, and it's great to see them focusing their efforts in this area," said Ed Montes, executive vice president-managing director of Media Contacts, a digital media agency owned by Havas. "They very recently came to us with some interesting new products that combine several of their new ad networks." Selling advertisers both performance-based and branding programs, AOL plans to eventually have a single data platform that would give it the ability to target ads across its different network businesses. AOL is not alone in its focus on ad networks as a way to fend off a slowing ad market overall. Yahoo, Microsoft, and even holding company WPP Group have invested in ad networks over the past year. "With the increasing fragmentation of online audiences, the best way to serve advertisers is to enable them to harness massive advertising networks that reach across the entire Internet, not just our AOL Web sites," said Falco. AOL, however, might do well to concentrate less on new ad networks, and more on its own ad inventory, commented David Moore, chairman and CEO of 24/7 Real Media, the online ad firm acquired by WPP Group in July for $649 million. "It's interesting to watch all these portals buying up ad networks when they're not sold out on the inventory they've got on their own sites," Moore said. Separately, AOL on Monday said it has signed an agreement with HP to offer co-branded, localized versions of its portal, toolbar and search on HP desktop and notebook PCs sold worldwide. Under the agreement, the co-branded portal will be set as the default home page, and the co-branded toolbar and search will be default settings in various countries worldwide. The agreement extends and expands the existing relationship between HP and AOL, which provides consumers with a co-branded AOL/HP portal as the default home page for HP consumer PCs sold in the U.S. Gavin O'Malley can be reached at gavin@mediapost.com