Pali Research analyst Rich Greenfield says “sizable layoffs” are coming to Fox Interactive. Mostly this has to do with Google being unlikely to renew its search deal with the News Corp. (NWS) property when it expires in 2010.
In fiscal 2009 and fiscal 2010 , we estimate Myspace will generate $300 million of revenues from its Google search deal in each year, representing about 35% of FIM’s total revenues in each year (with Myspace still by far the largest component of FIM).
While Yahoo, AOL and MSN could all be bidders for a new Myspace deal beginning in July 2010, we suspect all have learned from GOOG’s overpayment. In turn, we are estimating a 50% drop in search fees.
Assuming a new search deal in FY ’11 at 50% of the current rate, FIM would need to organically grow revenues by 27%-plus in fiscal (June) 2011 to compensate for the reduced search revenues. We are assuming organic revenues are up double digits and they can take some cost out of the business over the coming year, but not enough to fully-compensate. In turn, we now expect FIM profitability to drop notably in fiscal 2011.
Besides layoffs, Rich says he expects Fox Interactive and MySpace to:
- Replace or find new responsibilities for FIM topper Peter Levinsohn
- Add verticals to support its portal advertising strategy.
Update: A previous version of this story said Rich suggested MySpace coCEOs Chris DeWolfe and Tom Anderson could lose their jobs. He did not suggest this.
Photo: Robert Scoble
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