Key points on AOL-Bebo (TWX):
*Price probably fine. Social networks very hard to monetise, but given per-member price deflation since Murdoch bought MySpace, $850 million doesn’t seem egregious. Certainly not a steal, either, though: Bebo has reportedly been on block for at least a month, and we assume there were other bidders.
*Bebo financials reported by Kara Swisher suggest AOL purchase price is about 7X 2009 revenue and 15X EBITDA.
*Bebo will not help AOL much in the US, which is where most of AOL’s current user base is). The US is a two-horse social-network game, with one fast growing No. 2 (Facebook) and a stagnant No. 1 (MySpace). Unfortunately, you get few points for third place.
*The potential home run here is if AOL can effectively combine AIM (AOL Instant Messenger), ICQ, and Bebo and accelerate the growth of all three. Social networking is a game AOL should have won long ago given the dominance of AIM. At this point, it is probably unlikely that the combo can suddenly turbocharge the growth of either Bebo or AIM, but it’s possible.
*TW writing an $850 million check probably confirms our report of a few days ago that Jeff Bewkes is not looking to unload AOL immediately. We think he’d hit a good bid, if one came along, but one is unlikely to. Our source suggested that Bewkes planned to give AOL until mid-year to prove that its turnaround can work. This acquisition suggests that he is, in fact, committed to doing that.
*The Bebo acquisition would likely make a Yahoo-AOL combination modestly more attractive. Yahoo is much stronger internationally than AOL, so the Bebo synergy would be greater. Also, the combined communications and social-networking power of Yahoo-AOL-Bebo would be impressive. This said, we still don’t think the combo would be more attractive to Yahoo shareholders than a $31 Microsoft bid.
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