Back in June, when Salesforce.com acquired the social media marketing management software company Buddy Media, we noted that the deal price — which turned out to be $745 million — was high given that Buddy Media appeared to be a loss-making company.
Today, Salesforce filed an SEC disclosure that confirms the scope of those losses. Buddy Media (since renamed “Dreamforce” “Salesforce Marketing Cloud”) lost $20 million through June of this year, an increased loss from the $3.5 million it burned in the same period in 2011.
Here’s Buddy Media’s income statement:
The most worrying thing for Salesforce CEO Marc Bennioff and Buddy Media CEO Michael Lazerow is that this snapshot shows that Buddy Media does not appear to be scaling toward profitability. Rather, it’s going backwards — losing more money on its revenues as it grows. (And growing it is: the company added $8 million in revenue from clients such as Ford, Hewlett Packard, Southwest Airlines* and Unilever.)
In 2011, its losses were 34% of its revenues. In 2012, they’re 114% of revenues.
In 2011, Buddy Media spent $12.8 million to make $10.2 million in revenues; in 2012 it spent $35 million to make $18 million.
AllThingsD calculated that Buddy Media’s burn rate is $3.5 million per month.
All that is having a nasty effect on Buddy’s balance sheet, which is bleeding millions:
The company lost $21.2 million in cash from its balance sheet between this year and last. In its place, it added $20 million in “goodwill,” which is an accounting fiction that usually represents a putative intangible premium on a sale value.
Buddy media’s liabilities went up by $15.8 million, and include an $8 million contingency payment due to management at Brighter Option, an ad-buying operation previously acquired by Buddy Media. That $8 million is part of a $15.6 million potential earnout deal, the disclosure states:
The other curious item in the disclosure is a volume discount scheme for certain clients. If those clients spend certain sums of money, Buddy Media returns cash rebates to them as a goodwill gesture. The company described it thus:
The Company records cash and equity consideration paid to customers for volume-based incentives as a reduction of revenue. During the six months ended 2012 and 2011, the customer earned 54,247 and 134,214 warrants, respectively, for meeting certain revenue targets. The value of the warrants awarded was $7.0 million as of June 30, 2012. Since revenue related to this customer was $1.9 million and $0.5 million for the six months ended June 30, 2012 and 2011, respectively, the Company recorded $1.9 million and $0.5 million as a reduction of revenue and $2.2 million and $0 million for the six months ended June 30, 2012 and 2011, respectively as a sales and marketing expense in the consolidated statement of operations.
A spokesperson for Buddy Media declined to elaborate on which clients got this benefit.
*Correction: Southwest Airlines has not been a Buddy Media client for some time, the airline tells us. It is a client of Radian 6, which is a unit of Salesforce.
- BUDDY MEDIA: Did Salesforce.com Just Overpay For A Money-Losing Company?
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