A few years ago, Rupert Murdoch was heralded as an Internet genius.
Why? Because unlike most of his digital-dunce mogul brethren, he somehow managed to buy MySpace for only $580 million!
This coup was cited again and again as evidence that Rupert Murdoch had something that no other mainstream media mogul (excepting possibly Barry Diller) had: Brains enough not to get taken to the cleaners when it came to buying Internet properties.
18 months ago, the brilliant digital Rupert even emerged as a potential white-knight in the Microsoft-Yahoo struggle: He would merge MySpace into Yahoo and save Yahoo from Microsoft’s clutches…as long as Yahoo agreed to value MySpace at something like $10 billion.
But even Yahoo wasn’t that stupid. Rupert’s real goal in that effort was obviously to unload MySpace before its value completely collapsed. Which it has since done.
A source suggests that MySpace did about $500–$600 million of revenue in fiscal 2009 (through June) and that it lost money in the process. Now new CEO Owen Van Natta is leaving, after nine months in which he appears to have accomplished basically nothing.
How much is a deeply troubled, money-losing social network that has long-since surrendered its buzz and momentum to Facebook worth?
There’s no definitive answer.
A glance at the financials–shrinking revenue, losses, declining market share, loss of mojo and market leadership–would suggest that the company might be worth 1X-2X revenue–on the assumption that MySpace could cut costs radically and make a bit of money in the next few years. That would put the valuation at about $500 million to $1.2 billion–with the lower end being LESS than Rupert paid for it, and the upper end being twice what he paid for it (hardly the steal of the century).
News Corp. will no doubt say that the recent problem was van Natta and that the new co-presidents, Jason Hirschorn and Mike Jones, will get MySpace’s growth cranking again. We’ll believe it when we see it, but in that case MySpace might be worth 3X-4X revenue or more. This wouldn’t make Rupert’s purchase price a brilliant coup, but it would at least produce a good return.
But then there’s a third possibility, one that history suggests is a very real one: MySpace might actually be worth next to nothing.
In the history of the Internet, the instances in which a former world-beating company has lost its mojo and then come roaring back to health are RARE. Far more common is the fate of companies like Lycos, Infoseek, and Excite–once-rich, successful, and powerful properties that are now all but forgotten.
Why are these properties all but forgotten?
Because the Internet is a winners-take-most game.
Yahoo won the portal wars–and Lycos, Infoseek, and Excite were discarded like garbage on the side of the road. Google won the search wars. Facebook and Twitter are now winning the social-network wars.
Like MySpace, Lycos, Infoseek, and Excite were bought near the peak of their parabolic life-trajectories for absolutely fabulous sums by companies that should have known better:
- Infoseek went to Disney for $1+ billion
- Excite went to @Home for $8 billion
- Lycos went to Terra for, gulp, $13 billion!
How much are Lycos, Infoseek and Excite worth now?
Next to nothing.
Now that we know how the future turned out, we also know how much Lycos, Infoseek, and Excite were REALLY WORTH when they were bought out at these fantastic sums: Next to nothing.
Because the value of a business is the discounted value of the future cash flows it produces–and the discounted value of the future cash flows produced by Lycos, Infoseek, and Excite turned out to be next to nothing.
So, if MySpace follows in the footsteps of these other Internet relics, how much might it actually be worth right now?
Next to nothing.
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