By almost any measure, MySpace got Photobucket for an absolute steal when compared to the Google YouTube deal. The companies are somewhat comparable - both have very large libraries of user-created videos, and both built their business on the back of MySpace. Photobucket also has a huge library of shared photos, a business YouTube never entered.
Google paid $1.65 billion in stock for YouTube. By the time the deal closed, the Google stock was worth nearly $1.8 billion. Photobucket is being acquired for just less than 1/5 of that - $250 million plus an earnout of up to $50 million
At the time of the announcement of their acquisition in October 2006 YouTube had very little revenue. Photobucket, however, is on track to blow through their projection of $25 million this year.
Also, the relative sizes of the two companies aren’t that far off. At the time of the acquisition, Comscore suggested that YouTube had approximately 25 million U.S. monthly visitors. Today, Photobucket has around 20 million U.S. monthly visitors, or 80% of what YouTube had when it was acquired.
Photobucket has 40 million registered users and is gaining another 85,000 or so per day. Their users are highly active, and upload a lot of content to the network. YouTube’s registered users were far below Photobucket’s 40 million at the time of their acquisition. YouTube had (and still has) a lot of traffic coming to the site to view videos, but far fewer users actually creating and posting content.
Leaving revenue aside, the traffic numbers indicate a comparable price of $1.3 billion for Photobucket, 4x the price they actually received from MySpace. To look at this another way, YouTube was paid about $67 per unique visitor. Photobucket got just $13.
Did Google overpay for YouTube? Did MySpace get Photobucket for a steal? Perhaps both. But in the end, being no. 1 in a category means you get a premium on acquisition. In the case of YouTube, that premium seems to be about 4x.
Another factor: Photobucket just didn’t generate the bidding hype that YouTube saw. It looks like the final bidders were IAC and MySpace, with a number of other bidders falling off in the last few weeks (perhaps spooked by the MySpace blockage of Photobucket videos).
In a year or so this deal is likely to look as brilliant for NewsCorp (which owns MySpace) as the MySpace acquisition was. Some would argue that they play dirty poker, but shutting Photobucket down at a crucial point in the acquisition negotiations was a brilliant move, and may have shaved hundreds of millions of dollars off of the purchase price.
It’s web 2.0 economics really. YouTube has far more sex appeal with its copyright infringement and karaoke videos than a photo site like photobucket. If you can’t buy functionality, you can buy brand appeal.
Yea…but you can’t help but thinking MySpace blocking photobuckets widget was a reverse pump-and-dump — ie the blocked the widget in anticipation of the acquisition — lowering traffic -> lowers valuation -> steal for MySpace / IAC
I do believe myspaced used that little “block photobuckets videos” in order to drop the price some… I think they wanted to convince the photobucket execs that without myspace their company decreases in revenue substantially.
Makes you wonder why google didn’t try to buy photobucket. They would’ve owned the #1 video site, and the #1 photo hosting site. And it was dirt cheap compared to youtube.
Congrats to Myspace for picking up Photobucket. It seemed inevitable in their quest to conquer web 2.0.
Besides all the talk on why they did it and whether it was worth it, unless I am wrong, this is MySpace FIRST ACQUISITION. Even though they are a subsidiary of News Corp. it is interesting that they are opening up an M&A branch.
Are we entering a new era where the web 2.0 leaders are media moguls in their own right and will be competing to acquire other hot properties before the Old Guys (Yahoo, Google) and the Real Old Guys (traditional media) can step to the plate?
I’d say lack of any real need to try to go toe to toe with Flickr. Right now Google controls the You Tubes and they are probably still working on ways to monetize this, before moving into an entirely different media source. Also photobuckets video sharing wouldn’t synergize well with the GooTubes.
Yea but then you also take out a potential competitor in the video market. And it would’ve been googles equivelant to flickr.
I don’t doubt for a second that MySpace blocked photobucket to cheapen the cost.
They are so dirty - I will never ever join MySpace even though people are always trying to peer pressure me into it.
A MySpace profile looks like someone just threw up all over their monitor.
I love to see Web 2.0 companies merging/being aquired if it means increased functionality and usability for me. Hopefully hosting through Photobucket for MySpace will finally be easy peasy.
Photobucket is being payed in cash while YouTube has been payed in stocks, probably with a lockup of one or maybe more years. Isn’t that the big difference? You can’t compare cash with stocks…
“Did Google overpay for YouTube? Did MySpace get Photobucket for a steal?”
No and no. The image business is dead, dead, dead. I read a fair few photography industry blogs and they’re all crying into their beer: flat images have pretty much no business model any more. The only money is in distribution, as with Photobucket, but even they are only making cents where the old economy companies they’re replacing made dollars. Photobucket is a decent pickup for MySpace for reasons largely unrelated to Photobucket’s core business, but on its own it’s not much.
Video, on the other hand, is still hot. Three dimensions good, two dimensions bad.
YouTube was an is a destination. Photobucket is not, it’s a service. A great service, but not comparable to a destination or cultural phenomenon the way YouTube is.
i am interested in seeing this story develop. it does seem very low for photobuckets reach and popularity.
you gotta believe that photobucket talked with other suitors (google, ms, facebook) before settling w/ myspace. since there are only a handful of portal destinations that dominate (google, yahoo!, myspace, facebook), it must have made sense for photobucket to take this offer instead of getting left out in the cold.
facebook needs to ipo or get acquired in order that they have the financial strength to compete for these value-add properties against these deeper pocket sites.
HAY IM NEW TO THIS I READ ABOUT U AND YOU SOUND INTERESTING
P.S RIGHT BACK
“In a year or so this deal is likely to look as brilliant for NewsCorp (which owns MySpace) as the MySpace acquisition was.”
The MySpace acquisition was brilliant? That’s news to me.
I agree with ted on this one. Youtube is a destination: a site I go to several times a week just to see what’s new. Photobucket is an image/vid dump where I go if I want to host something somewhere else. If Myspace and/or other social networks block widgets from showing ads, then the only time Photobucket is going to make money from me is when I’m uploading my stuff. Youtube on the other hand can show me ads 10x as often because I’m not just using it as a service, I’m there to consume.
I’d say lack of any real need to try to go toe to toe with Flickr. Right now Google controls the You Tubes and they are probably still working on ways to monetize this, before moving into an entirely different media source. Also photobuckets video sharing wouldn’t synergize well with the GooTubes
YEHH YAH RIGHT
P.S RIGHT BACK NOW
This is another nice move by Mr. Murdoch and the News Corp/FIM teams…locking up the arguably top (depending on one’s definition of “top”) photo site on the web.
In addition to being a nice additional insurance policy for their market-leading MySpace property (i.e. users/members, visit counts, and time/visit); it also opens up additional monetization opportunities which Photobucket would have found difficult if not impossible for themselves to realize.
Unlike some of the recent acquisitions by others, this is a clearcut and prescient 1 + 1 = 3 synergistic move.
Although Youtube hand more brand appeal and was more ’sexy’ than photobucket, it was a great price MySpace got for them.
As Michael said, their market reach is similar (although yes one is a destination and one is a service), but aren’t their costs substantially lower too? Hosting photos is a lot less bandwidth than hosting videos.
“and may have shaved hundreds of millions of dollars off of the purchase price”
Hundreds of millions, huh? Riiiiiiiiiight.
What are the implications for Slide.com?
You would think they would get blocked from Myspace in near future
Would the underbidders be interested in slide.com?
MySpace could easily have saved $250 million by just offering this photobucket functionality themselves and blocking the photobucket widget. Google tried to do this with YouTube (i.e. Google Video), but no one showed up so they had to end up purchasing YouTube. MySpace doesn’t really gain anything by purchasing Photobucket. I bet 90%+ of photobucket items were put there to host via MySpace anyhow.
A “steal”?? Yeah right. I say they over payed massively for infrastructure they could have built themselves.
$250 million is a ripper deal for photobucket. They could have become kickthebucket if they rejected the deal and subsequently banned.
everyone knows that text
Yahoo!’s $35M fer Flickr seems like chump change* I guess they’re paying for the Users but i was always under the impression that Photobucket was just a means fer Users to get their Photos on MySpace??
yeah they shouldda developed a Photo UpLoadr in house fer a coupla thouw*
;PPP
All of these deals come with too high a valuation to be considered actual business deals. Photobucket got 10X revenues? Nobody pays that much for a business. I mean, if a PE company wanted to buy P&G’s fabric care division, would they give them $170Billion for it? That’s crazy even for a great business like P&G fabric care. This wasn’t even a deal for users - Myspace probably already has a high % of the users on Photobucket. These are simply real-estate plays. Photobucket is a well-known and respected property, just as YouTube was the marketleading piracy…I mean user generated content site. But these multiples are not business valuations - those are based on cash-flow or some other reasonable measure. MySpace paid for the nicest house on block nobody wants to live on. The fact that we’re calling it a “steal” confounds me.
It was a steal. Wish I had bought it myself. LOL……. I’m sure the partnership will do extremly well.
Here is a question for you all. How come YouTube is being sued by everyone but MySpace and other sites that host user posted videos don’t seem to attract the same rath of content producers such as Viacom?
Re@28: Spud
Because the folks at Google are arrogant prima donna’s that’s why. Ask anyone who has had to deal with them including Viacom.
Out of all of those, MySpace is the only one that appears to be a steal.
Bought in 05/2005 for $580 mil,
in 2006: they had $200 mil in revenue (per NYT),
in 2007: MySpace is now generating in excess of $30 million a month in revenue, with about $24 million in domestic revenue and $6 million internationally. He adds that monthly revenues should more than double over the next 12 months, and “at very high incremental revenue margins.” So in 12 months, he’s saying, MySpace should be doing more than $60 million a month in revenue, for an annual run rate in the neighborhood of $750 million a year.
(per Barron’s Online)
Per FT, MySpace also has a three year $900 mil ad deal in works with Google.
Combined 2-year revenue would be twice as much as the investment was (not sure what the profit number is).
Photobucket is being bought at 10 times revenue.
Youtube was bought at N times revenue.
If MySpace/News Corp are able to add as many banners to Photobucket as MySpace has, the revenue may go up and pay the investment back faster, but Photobucket’s community may not be as happy and react by gradually switching to other services.
Still, out of all acquisitions so far, MySpace is the only one that really “made it’ and made financial sense (vs. stratigic, … be the first/largest in its category, … and so on)
Good luck to them to integrate Photobucket and make financial sense out of it as well.
Still, a nice steal!
Photobucket and Flickr aren’t really competitors. Photobucket is about image hosting. Flickr is about photo sharing. Flickr is a destination site, a community, and even more than anything else an addictive as hell social network.
Photobucket is not addictive. It’s not a destination site. It benefited from a cultural move that found MySpace people using it host mainly pictures and avatars — and to a new degree video. Without MySpace and their traffic photobucket was far from compelling. The image size limitations made it a place where serious photographers would not socialize.
Photobucket has far more images than Flickr. More than 5x more. But with the recently announced integration of Yahoo Photos into Flickr, Flickr will soon get close.
Flickr’s images ultimately are more meaningful though. More meaningful because they come with a community and as a destination site. They are also far more complete in terms of organization (tagging, ranking, interestingness etc.) This has far more eventual value in the world of search which neither Photobucket nor Flickr have scratched the surface yet with.
If $250 million was the bargain of the year for Fox interactive, then $35 million was the steal of the decade for Yahoo when they bought Flickr.
The question remains though who will ultimately dominate the world of community photosharing for the rest of the non-English speaking world. That is a much larger prize than either Photobucket or Flickr today.
I agree with ted. YouTube is valuable both as a destination and a cultural phenomenon.
To see what this is worth, check out a comparison of the google searches for both: http://www.google.com/trends?q.....p;date=all
Also, I’m sure growth rate was a major factor. Youtube was founded two years ago. Photobucket took four years to get where it is now.
People count comparison: http://snapshot.compete.com/ph.....?metric=uv
i think photobucket’s arm was twisted into getting acquired by myspace. nobody would’ve touched photobucket with a 10 foot pole if its business was largely dependent on myspace. if a google bought photobucket, myspace can just block photobucket and its value would disappear overnight. hence, the only logical place for photobucket to go was myspace, which had power over it and therefore was able to lowball them.
You could say they got Photobucket for a steal, but I’ve been to YouTube at least a few hundred times in the past month (not counting the number of YouTube videos I’ve watched embedded on a few dozen sites). I’ve never been to Photobucket’s site. I’m not alone either.
I like this story. Murdoch adds functionality and reach to his media conglomerate at a reasonable price tag. He needs some audience flow that is independant from GOOG / YHOO / MSFT for the upcoming audience wars. From my point of view it makes sense to integrate those feature sites into social networks.
Michael, I’m not sure if you know much finance, but this deal is certainly not a steal. The biggest factor here is that Photobucket adds almost no incremental visitors to to Myspace. It almost seems like Murdoch is paying through the nose for making the mistake of letting Photobucket grow this big.
All will grow stale over time (YouTube and Photobucket) and a newcomer will arrive taking over their traffic. Check out were CNET’s Webshots is at now.
I am reminded of the negotiations between two farmers from Maine at the county fair. One farmer was showing off his “blue ribbon” dog and proposing to sell it for $100,000. The other farmers were laughing hysterically at the idea of a $100K dog. Dogs don’t produce income. How could a dog be worth $100K? Then one farmer stepped up and offered to trade two of his $50,000 cats for the $100K dog. The dog owner quickly agreed and bragged to all his friends how he sold his dog for $100K.
Acquisitions that are done as stock swaps are obviously not the same as cash transactions. Public companies often use their stock as trading currency for acquisitions since it has no cash impact on their business. However, stock transactions dilute the value of other shareholders, sometimes significantly. In a rising stock market no one really notices because the steady share price increase masks the dilution. When the stock market turns the problems are exposed…and magnified.
I wrote a blog about the psychology of acquisitions, and related it to this deal. See http://dondodge.typepad.com/th.....my_tw.html
What a terrific deal for MySpace. I am following all of the different acquisitions of late and had previously concluded that everyone has been overpaying. Looks like there are a few good buys out there and Google isn’t the only company competing.