Amid the hoopla surrounding Salesforce.com’s $698 million acquisition of Buddy Media, few have noticed what it reveals about the state of Buddy Media’s finances, specifically this section of the deal announcement:FY13: The acquisition is expected to increase revenues by approximately $20 million to $25 million, and to reduce non-GAAP EPS by approximately $0.14 to $0.15 in the second half of the year …
The first half of that sentence suggests that Buddy Media’s expected revenues for the last four and a half months of FY2013 are $20-25 million. But why would earnings-per-share be reduced?
Here’s the maths. In Salesforce’s non-GAAP EPS calculation there are 146 million shares outstanding. EPS is reduced by an estimated 14 cents per share. Thus, 0.14 x 146 million = $20.44 million. In other words, despite its revenues Buddy Media is expected to make a loss of at least $20 million on the last few months of FY2013.
We put these numbers to a Buddy Media spokesperson who declined to comment.
There are a number of other things going on here, such as transaction costs, that may make that loss a little smaller. But even so, the back-of-the-envelop maths (which assumes a little growth over the full year) suggests Buddy Media could be on track to spend $136 million in operating costs to earn just $60-$75 million in revenues.
Salesforce’s purchase was a multiple of somewhere around nine to 12 times revenues—for a company that apparently didn’t make a profit. Techcrunch added:
Some have questioned whether Salesforce has made full use of its acquisition of Radian6 for $326 million, so people will be watching closely to see how Buddy Media is run: will it be given free reign to continue its business as usual or will there be some attempts to integrate the business into a wider offering?
If the numbers are true, that might go some way to explaining why WPP didn’t double down on its $5 million stake in Buddy Media.
*Correction: This story originally used only a partial fiscal year, as presented by Salesforce.com, to make its estimates. It has since been update to assume Buddy Media’s revenues will be added to Salesforce’s for only the final four and a half months of the year.
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