M&A | Mark Evans

Is Flickr Worth $4-Billion?

May 8th, 2008 | 38 Comments | Posted in M&A

In the wake of Microsoft’s aborted courtship of Yahoo and Jerry “Oh, did you increase your offer?” Yang, there’s bound to be a lot of scrutiny about what’s next for Yahoo.

One asset that’s well known but perhaps not scrutinized from an investment perspective is Flickr, the world’s most popular photo-sharing site that Yahoo picked up for a song (estimated $40-million) in 2005. Today, Flickr attracts more than 44 million unique visitors a month, according to Comscore, while Compete.com reports Flickr had 30 million unique visitors and 70.2 million page views in the U.S. last month.

Despite Flickr’s popularity, it is arguably under-monetized. In terms of advertising, it’s minimal at best. Instead, Flickr makes most of its money by selling Flickr Pro memberships for $24.95/year and offers e-commerce services through partners such as photocards, posters, frames and calendars.

So, what’s Flickr worth, and, more important, what could it be worth if it was managed more aggressively?

Let’s do some back of the envelope calculations based on its current financial model. If you assume 10% of its 44 million unique visitors have Flickr Pro accounts, that’s about $110-million in revenue; if it’s only 5%, it’s $55-million. Then, add another $10-million in e-commerce commissions.

What you get is revenue of $65-million to $120-million. If we now take Henry Blodget’s 25X revenue formula (which he applied to Facebook), Flickr is worth $1.5-billion to $3-billion.

Scenario II: Flickr Monetized Better

With online advertising gaining so much traction, Flickr would be a very attractive target given its traffic and user demographics. For the sake of argument, let’s assume Flickr changed business tactics and introduced two high-profile advertising slots throughout the service. I choose two because it would be significant without pissing off most of Flickr users, who regard Flickr as their personal property and are resistant to change of any kind.

If Flickr could get $5/CPM, that would generate $10-million in advertising/year based on the assumption it’s getting about 100 million global pageviews/month. It’s not a lot of revenue given the conservative approach to how much advertising Flickr would present and how much it would charge but, nevertheless, it would give Flickr an additional $250-million based on Blodget’s formula.

Then, you’re looking at a company worth $1.75-billion to $3.25-billion. Add on a takeover or IPO premium of perhaps 25%, and you’re looking at a valuation of $2.2-billion to $4-billion.

More: For a story on Flickr’s growth and success, check out this story in USA Today. Here’s Blodget’s list of the 25 most-valuable privately-owned startups. As well, Mashable’s Adam Ostrow calling MySpace “the biggest steal in Internet history”

The graph below looks at the number of unique visitors last month for Facebook, Flickr and Photobucket, which was acquired by News Corp. last year for $300-million.

Technorati Tags: Flickr, Yahoo

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Yahoo’s Smorgasbord is the Problem

May 5th, 2008 | 7 Comments | Posted in M&A, Microsoft

It’s Monday, the sun is shining and it’s the first day of the New Yahoo now that the evil empire - Microsoft - has been repelled after a two-month siege.

Now what, Mr. Jerry Yang? Surely, you’ve got something up your strategic sleeve that somehow convinced the Yahoo board to walk away from a $40-billion offer. Maybe as Dan Farber suggests, Yahoo is betting its future of Y!Open that will make Yahoo an open and social platform.

Yahoo and Yang are getting all kinds of suggestions about what to do now: Henry Blodget encourages Yahoo to do the outsourcing deal with Google while Howard Lindzon suggests Yang stop blogging and focus on increasing shareholder value.

Perhaps another strategic issue Yahoo should seriously explore is whether is needs to be all things to all people. As Monster co-founder Jeff Taylor put it last week during a conversation the Communitech conference, Yahoo has an extensive service portfolio. He describes it as having “100 children”. As any parent with more than one child would appreciate, trying to manage multiple children is challenging let alone 100.

For a sense of what Yahoo is bringing to the table, check out a directory ironically called Yahoo! Everything. It features pretty much everything within the Yahoo empire that has been launched organically over the past 14 years or been acquired. The list is impressive but also daunting given Yahoo is everywhere and anywhere.

The question is whether trying to be all-things-to-all-people makes sense or works. Is it possible to effectively manage a business with so many tentacles? How do you nurture the ones with more growth potential while still keeping your other children happy?

If you want to illustrate Yahoo’s strategic challenges, let’s take a look at del.icio.us, the popular bookmarking that Yahoo acquired in 2005 for $20-million. Since then, del.icio.us hasn’t changed that much, although a major upgrade has apparently been in the works for months, and it hasn’t been extensively integrated that much within the Yahoo empire.

So, why did Yahoo buy del.icio.us other than wanting access to its millions of users? What was the strategic fit? This is just one example but I’m sure you could go through Yahoo Everything, and ask the same question for dozens of organically-created services and acquisitions.

As Yang scrambles to create YAM (Yahoo After Microsoft) maybe he needs to look at the company’s service smorgasbord to determine what Yahoo really needs to be successful. Maybe kicking a few children out of the house (e.g. closing, selling or spinning off business units) would be a good move to give everyone else more room to grow.

More: ReadWriteWeb’s Marshall Kirkpatrick has a good post looking at how your favorite Yahoo services are safe for now.

Technorati Tags: Jerry Yang, Microsoft, Yahoo

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Let’s Get the (Yahoo-Microsoft Blogging Party) Started

May 3rd, 2008 | 2 Comments | Posted in Blogs, M&A

So, Microsoft has withdrawn its hostile bid for Yahoo - putting the Saturday night plans of tech bloggers around the world into total disarray with dinner plans cancelled, NBA and NBA playoff games abandoned, cold libations sadly gone lukewarm, and partners, wives and girlfriends left cooling their collective heels.

In other words, the blogosphere is furiously jumping on the Yahoo-Microsoft story like drowning sailors scrambling to get on life rafts. It’s the story and no one wants to be left behind. Because anyone and everyone can jump into the conversation, they probably will.

The heavyweights - CNet, GigaOm, TechCrunch, Paul Kedrosky, BoomTown, CenterNetworks - have already weighed into the fray with instant analysis. Pretty soon, Techmeme will be completely overwhelmed as the blogosphere goes into overdrive.

Stepping back from the news itself, it’s pretty fascinating to see how a major development can spawn a feeding (blogging?) frenzy with everyone excited about talking as opposed to simply listening. Since they (Blogger, Wordpress, TypePad) built it, they (bloggers) will come.

I’m not suggesting people shouldn’t blog to their heart’s content about Microsoft walking away from Yahoo after spending so much time trying to woo Jerry Yang et al into the fold. If you’ve got something to say, do it but you’ll have a lot of company…include me, I guess.

Update: Not that it’s a surprise but the Microsoft-Yahoo news has consumed nearly all of Techmeme.

Technorati Tags: Blogs, Microsoft, Yahoo

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Yahoo Wants its Groove Back

April 25th, 2008 | 2 Comments | Posted in M&A

Yahoo is a fascinating story these days.

On one hand, it’s the subject of a hostile takeover bid from Microsoft that may or may not happen depending on which way the wind is blowing, each company’s most recent financial performance (Yahoo - okay; Microsoft - great), how Jerry Yang and/or Steve Ballmer feel when they get of bed in the morning, etc.

In the meantime, Yahoo is furiously working to give itself a corporate makeover. All of a sudden, it’s unveiled a new social strategy where it will become a friendly and open platform - in addition to offering content and services to millions of consumers.

It’s an ambitious strategy and the bold moves that everyone was expected from Yang when he took over as CEO, and promised dramatic changes in 100 days.

From here, there are two questions:

1. Is it too late?

Why now as opposed to a year ago when the idea of a Microsoft takeover was mere speculation. What has prompted Yahoo to get bullish strategically and embrace some of the key trends (openness, portability, etc.).

2. Does it matter?

One of Yahoo’s biggest problems is it allowed itself to get stale. Whether it was complacency and bad management decisions, Yahoo became a super tanker unable to move quickly strategically, rather than a flexible online player able to take advantage of key trends. Yahoo tried to address this situation by acquiring some interesting start-ups but then essentially ignored the start-ups it had brought into the fold.

In the process, Yahoo lost serious ground to competitors. A few examples: Yahoo Search is a distant second behind Google; Yahoo Mail is having a hard time competing against GMail and Live.com/Hotmail, and Yahoo is having such a difficult time in the ad business, it’s turning to Google for help. From a personal perspective, I rarely use Yahoo services with the exception of Yahoo Finance, del.icio.us and Flickr.

What’s interesting about Yahoo, however, is it has some terrific online properties that aren’t doing as well as they should. Whether it’s Yahoo staying independent or Microsoft taking over, the key question is whether Yahoo can get its groove back.

Technorati Tags: Microsoft, Yahoo

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Skype: The Sexier Story is Growth

April 21st, 2008 | 2 Comments | Posted in M&A

There’s lots of excitement today about Skype unveiling a new plan offering unlimited long-distance calls to 34 countries but the far more interesting story - at least from this corner’s perspective - is Skype’s strong growth, which has been chronically unreported.

Consider Skype’s first-quarter results: another 33 million users came on board, boosting the number of registered users to 309 million. Meanwhile, year-over-year revenue climbed 61% to $126-million and Skype-to-Skype minutes rose 30% to 14.2 billion. So, what you’ve got is a high-growth business that will likely have sales of $500-million in 2008.

The big question is what does eBay do with Skype given the strategic synergies envisioned when Skype was purchased for $4.1-billion have never materialized. iLocus suggests a logical option is spinning it off into a standalone company rather than selling it to a carrier such as BT, France Telecom, AT&T or Telefonica.

That makes the most sense given Skype has an increasingly sexy story to tell investors interested in gaining exposure to VoIP but unwilling to get anywhere near Vonage. If eBay decided to do a Skype IPO, there would be no lack of demand, and it could easily give eBay way to recoup its investment.

Let’s see if eBay is willing to swallow its strategic pride and do something dramatic with Skype this year.

Update: The Skype blog has an interview with CEO Josh Silverman. When asked about a Financial Times story that eBay could sell Skype this year, Silverman did a nice dance around the question:

“Skype is a strong, profitable business with 61% year-on-year revenue growth and 309 million registered users, with 33 million added in Q1 2008. eBay has just made a huge investment in Skype by removing the earn-out. We have new management in place, and with the earnout out of the way, we measure ourselves by our ability to delight our users. That’s our focus. That’s our test.”

Technorati Tags: eBay, Skype

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Yahoo and AOL Elope…Maybe.

April 9th, 2008 | 1 Comment | Posted in M&A

Desperate to escape the clutches of Microsoft, Yahoo is running straight into the arms of AOL, according to the Wall St. Journal.

Call it a shot-gun marriage, call it an act of desperation, call it a strategic disaster but one thing is for sure, the online world of the giants could be a lot more interesting if you’ve got Google, Microsoft and Yahoo-AOL battling for dominance rather than just a two-man battle featuring Google vs. Microsoft.

Then again, an AOL-Yahoo marriage will time a lot of time and effort to consummate - if it ever happens. This, of course, could just be a huge bargaining ploy by Yahoo to pull more money out of Microsoft but why go through the motions for two months before striking a deal?

If the deal does happen, Yahoo-AOL will be an online content powerhouse. The question is how it capitalizes on its advertising potential. Google, which will owns a stake in AOL-Yahoo, could the X factor to make the deal work.

Interesting times indeed.

For more, check out Silicon Valley Insider, which calls the AOL-Yahoo deal a “smart combination”.

Technorati Tags: AOL, Microsoft, Yahoo

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Craig Newmark’s a Billionaire

April 3rd, 2008 | 2 Comments | Posted in M&A

…at least on paper, according to Silicon Valley Insider, which has done some number-crunching to come up a conservative value of $5-billion.

With that kind of dough Craigmark could move Craigslist from the Victorian house in San Francisco to some fancy campus somewhere in the Valley. Or perhaps buy a new car - a 2008 no-frills, environmentally-friendly Prius can be picked up for just $20,000, and Toyota will likely given Craig a great financing deal if he wants.

Truth be told, these kind of valuation exercises are entertaining reads if you’re looking to kill a few minutes of time that otherwise would be used for stuff like doing work. But what other purpose do they serve unless someone is really looking to buy and/or sell - something Newmark has no interest interest in even though dumping his Craigslist stake would make him worth about $2-billion.

I wonder what eBay think about the fact its 25% stake in Craiglist is worth $1.25-billion…at least on paper.

Technorati Tags: Craigslist

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Skype: The Rodney Dangerfield of Telecom

April 2nd, 2008 | 3 Comments | Posted in M&A, VOIP Services, Competition

The worst thing that ever happened to Skype was eBay’s decision to acquire it for $3.1-billion.

In an instant, Skype went from being cool and disruptive to a wildly over-priced acquisition that made little strategic sense for eBay. While eBay has struggled to figured out how Skype fits into the scheme of things (and taken a $1.4-billion writedown on the deal), Skype has evolved into a solid, growing business with revenue last year of $375-million, 276 million registered users, and 100 billion minutes of calls generated over the past five years.

Yet Skype receives little or no respect for being one of the few bright lights within the telecom industry, which makes it the resident Rodney Dangerfield, whose catch line was “I don’t get no respect”. You rarely see stories about Skype’s growth or how well it’s managed to do despite becoming an orphan within the eBay empire. Instead, the focus is always on how eBay paid too much, the writedown and how Skype makes no strategic sense for eBay.

The question facing eBay and its new president, John Donahue, is what to do with eBay (and StumbleUpon and Craigslist, for that matter). Do you sell Skype, and wash your hands of an acquisition that made little sense. Do you keep it, and try to grow the crap out of it?

TechCrunch, which loves nothing better than a juicy M&A rumour, is reporting Google could be in talks to buy or partner with Skype. It’s hard to tell whether there’s anything to the speculation given it seems to be based on the where there is smoke, there is fire approach.

The biggest issue for eBay is doing something with Skype that doesn’t make them look like strategic idiots again. If Donahue going to get off to a solid start as president, he needs to do something with Skype that looks smart, savvy and pragmatic.

Given Google’s interest in telecom (GrandCentral, GTalk, wireless spectrum etc.), Skype could make sense at the right price. Of course, it made sense for Google a few years ago when Tim Draper, one of Skype’s early investors, was running around Silicon Valley boldly suggesting Skype was worth $1-billion.

More: Silicon Valley Insider suggests Skype could be acquired for $3.1-billion to $4-billion, which would let eBay walk away with its head held high.

Technorati Tags: eBay, Google , Rodney Dangerfield, Skype

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What Does eBay Do with Craigslist Stake?

March 27th, 2008 | 4 Comments | Posted in M&A

Update: Silicon Valley Insider estimates Craigslist is worth $5-billion, making eBay’s stake worth $1.25-billion - not too shabby for an investment estimated at about $50-million.

With John Donahue taking over the eBay helm from Meg Whitman next week, I wonder if one of the key strategic issues on his plate is what to do with the 25% stake that eBay owns in Craigslist.

For the lack of a better word, it’s a “different” kind of investment given eBay does not seem to have any role in Craigslist, and there are no signs that founder Craig Newmark plans to sell or do an IPO any time soon. For eBay, the 25% stake, which has been estimated to be worth as much as $600-million, is pretty much dead-in-the-water money.

So, what does eBay do other than hold on for as long as it takes until Newmark feels it’s time to cash in and do something new and different. Perhaps waiting Newmark out is the best strategy given Craigslist’s strong brand, traffic (10 billion page views a month) and potential to generate a lot more revenue that Newmark and CEO Jim Buckmaster have chosen to currently pull in.

Of course, a lot depends on the terms of the agreement that Buckmaster brokered with eBay when it purchased the 25% stake from a Craigslist employee in 2004. This is entirely speculation but maybe eBay has a first right of refusal on the Newmark’s shares.

An intriguing question is whether anyone other than eBay would be interested in buying the stake? At face value, you have to believe there would be no lack of interested suitors looking to buy a stake in the world’s largest online classified player. The downside is they would likely have to deal with the same dead-in-the-water-until-Newmark-makes-a-move issue as eBay.

Another angle to the eBay-Craigslist relationship is how eBay’s own online classified business, Kijiji, comes into play. Despite the goofy name, Kijiji seems to be on a major roll (see the graph below that shows Kijiji and Craigslist had about the same amount of traffic last month), although it still lags far behind Craigslist.

If Kijiji emerges as a strong number two, does eBay really need its Craigslist stake? Or does eBay hold on to its Craigslist shares so it can have control of the two biggest players?

One more thought, if Donahue isn’t thinking about what to do with Craigslist, perhaps he’ll be focused on the future of StumbleUpon (I still don’t get why eBay bought it) and Skype (a great business bought at a rich valuation but not much of a strategic fit for eBay)

For more on Craigslist, check out this recent BBC.com story and video with Buckmaster.

Update: According to The Tech Chronicles, Craigslist is under fire from Connecticut Attorney General Richard Blumenthal for brushing aside requests to stop running advertising for prostitutes. “I’m astonished and appalled by Craigslist’s refusal to recognize the reality of prostitution on it’s Web site - despite advertisements containing graphic photographs and hourly rates, and widespread public reports of prostitutes using the site,” Blumenthal said.

More: Craigslist has just added support for more languages, including Quebecois.

Technorati Tags: Craigslist, eBay

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Does Google Need to Buy Every Cool Thing?

March 7th, 2008 | 4 Comments | Posted in Google, M&A

There are reports that Digg is really (and finally!) on the block, and that one of the four suitors is - surprise, surprise - Google.

While it might make strategic sense for Google to acquire Digg given its traffic and advertising potential, it just doesn’t feel right that Google seems to snap up every interesting Web service as it strives to control the Internet.

In the past year, for example, Google has bought cool start-ups such as Panoramio, FeedBurner, Adscape, GrandCentral, Postini and Jaiku, while Facebook slipped through its M&A clutches when Microsoft was allowed to buy a teeny-tiny stake for $250-million. (A complete list of Google’s acquisitions can be found here.)

Is it really healthy for the Internet that Google is so dominant and capable of buying anything within its strategic desires? Is the lack of a strong #2 player going to be bad for the Internet’s evolution when you’ve got one company essentially running the market, including its ability to control the economics of many businesses through AdSense.

Maybe we’re starting to enter the anti-Google (AG) era. Look at it this way, Google has gone from cool start-up that came out nowhere into an economic powerhouse with its tentacles increasingly stretching into every nook and cranny on the Web.

This is purely anecdotal but I think there’s some Google Fatigue starting to set in as people grow tired of seeing Google around every corner. For anyone looking to liberate themselves from Google, a good starting point is using a different search engine - a difficult task for many people but perhaps necessary task for Google to be reigned in.

Technorati Tags: Digg, Google , M&A

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