As part of Time Warner’s $24 billion writedown of goodwill that it detailed in this morning’s fourth quarter earnings announcement, AOL accounted for $2.2 billion. That charge swung the business from a $2.0 billion operating profit last year to a $1.1 billion operating loss in the quarter.
The charge was related to reducing the “carrying value of goodwill,” which is what companies do when when an acquisition or investment is no longer worth what they paid for them. For instance, Google just wrote down $1 billion of its investment in AOL itself. But AOL can’t take a charge on a decline in its own value (at least, I don’t think it can). It’s $2.2 billion charge is an acknowledgment that it overpaid for certain acquisitions or investments. But which ones?
It doesn’t say in the earnings release, but its biggest acquisition last year was the $850 million it paid for social network Bebo. It is now clear that AOL overpaid. But how much does AOL think it is worth now? 200 million? I have calls and emails into AOL, but don’t really expect them to answer that.
Of course, there are plenty of other acquisitions AOL can write down as well. (We track $8.8 billion worth of AOL acquisitions going back years on CrunchBase). It’s other large acquisitions in recent years were all online advertising companies (buy.at, Quigo, Tacoda, Third Screen Media). Those could be worth less now as well. And last quarter AOL shut down some businesses, including Xdrive (that is $30 million right there).
AOL’s advertising revenues declined 18 percent in the quarter to $507 million (which was flat with the third quarter). And it’s total revenues, including from dial-up subscriptions, was $968 million, down 23 percent. For the year, AOL had total revenues of $4.2 billion, down about $1 billion. But it’s advertising revenues of $2.1 billion was up 6 percent for the year.
Bibo is worth nothing.
Hi,
Can’t agree with you, enough the traffic they have worth so much..
Dear altek,
not sure which website you reffering to because here the discussion is about BEBO.com and not Bibo….
There are so many Social Networks and Social Media tools out there now, the only one that is truly valuable (in my humble opinion) is Twitter.
By AOL writing down Bebo clearly indicates that the social networking business model is not as great as bubble valuations put on Facebook and LinkedIn. There is so much hype in these valuations. If LinkedIn went IPO, it would be a great short position.
I agree.
Interestingly enough though, AOL is not alone. Companies, PE/VC funds, and RE funds across the board will have to take write-downs soon because almost everything anybody bought in 2005-2007 is worth less today.
“By AOL writing down Bebo clearly indicates that the social networking business model is not as great as bubble valuations put on Facebook and LinkedIn.”
That’s because no one knows how to fucking use them; they think ad revenue is going to pay for everything. Social networking sites have millions of consumers at their disposal that they refuse to sell their own home-grown products too (for the most part.) Facebook has created a few products like the virtual gifts etc. so it seems to be on the path to understanding how you can pitch products to people w/out annoying them. With all their VC money, Facebook could easily create exclusive video clips that some people would be willing to pay 99 cents for. They could hit different demographics. They could make a series of non-free iphone apps and then pitch them to their everyone on the site. Loads of things they could do but refuse to do.
I should add that Facebook could do all these things if they didn’t squander their revenue and VC money on lavish expenses. Bubble 1.0? What’s that? Let’s spend thousands on unnecessary food and living expenses even though we haven’t turned profit. Boo.com? Never heard of it.
Bebo definitly was overpriced… with the roar and rise of facebook it was apparent everyone wanted a lion’s share of the social network market…
No, AOL can definitely not write down the value of itself. Goodwill is only created by acquiring a company for more than the value of its assets (i.e. every Valley acquisition). If they’re writing down goodwill, they are definitely writing down past acquisition values.
To note: they can only do this when the value of the company is permanently damaged. There’s no writing back up, so companies are usually loathe to write them down (and usually do it in one “bad quarter”). That’s not a good sign that they are writing down that much value from earlier acquisitions.
Bebo? Heard about it first time
http://www.smartbloggerz.com
Oh yeah, this includes bebo – the math doesn’t work without that! Also think Tacoda is now written down to zero.
Taking all this pain so that they can sell the pieces and parts.
A sad and painful ending.
Why are the people that authorized these deals still in a position of power? They shouldn’t be running the neighborhood Dairy Queen.
the terms writedown and goodwill are new to me, though i think i grasp what’s going on. what i’m wondering is what this means going forward. if a company is loathe to write something down because they won’t be able to write it back up later, then are they saying that this is pretty much the end of whichever acquisitions they’re writing down — is this the first step in shutting things down? or is there a legal requirement that would push them to reassess a valuation, even if the company they acquired is something they’re going to keep going with?
Just one thing to remember. The charge off or write off of the goodwill associated with the acquisition is a non-cash expenditure. It’s basically a reduction of goodwill (on the balance sheet) and the balancing entry is on the P/L.
Besides, the valuation of many companies are inflated and there is no rhyme no reason for a lot of the valuations. Can’t fault Bebo for selling to AOL.
I’ll sell anyone almost anything (legal) if they are willing to buy it!
(disclaimer: if there are any grammatical or spelling errors, please save your comments)
funny they thought they bought a myspace. myspace would not be myspace if it was called bozo.com? the personalized natural language location based domain name had alot to do with the myspace phenomena.
http://seesmic....deos/RLBVaQ0sYP
I think its pretty obvious Bebo isn’t even worth the price of TechCrunch itself. Talk about a bad purchase.
I thin its pretty obvious bebo isn’t worth even 200 million. It probably has less traffic than Techcrunch. Horrible acquisition.
Who is the smart bozo at AOL who paid $850 M. He should be fired and AOL should have “clawback” his salary and compensation. Must be a real Stupid POS.
The acquisition was not as bad as we all think. With the development of new technology products and mobile device platforms AOL can make its money back in the years to come, fairly quickly . We all had the same feeling when Google purchased you tube which was unprofitable. Google made there money back real fast from investment. AOL needed a greater audience reach and they did so. Remember they are a think tank, also Google owns a good amount of AOL. It will all work out, especially if both Google and AOL create a new OS. The Risk Rewards ratio: calculate mathematically by dividing the amount of profit AOL expects to have made when the position is closed (i.e. the reward) by the amount AOL stands to lose if price moves in the unexpected direction (i.e. the risk).
As someone said, writing off goodwill in is usually done during a bad quarter to flush the “dead weight” of acquisitions off the books.
For those who don’t know, goodwill is the difference between the value difference between positive owner’s equity (assets minus liabilities) and the purchase price of an asset. So if you have owner’s equity of $10m and someone pays $25m for your business, they take on your assets on their balance sheet, they add $15m of goodwill and they pay for it with cash (reducing and asset) or they take on a loan (increase a liability) to pay for it. Goodwill is the “balancing” number of an acquisition for your balance sheet.
I think more importantly, this writedown signals that Time Warner is finally getting ready to sell AOL – they are reducing the value of the asset so that they can get a quick sale. If they didn’t do this now, then if someone acquired AOL for LESS than the book value TW has on their books, then TW would have to take a further writedown for selling an asset at a loss.
Companies around the world are flushing the junk out of their balance sheets so that they can re-position their gearing ratios for when liquidity returns to the market – these big companies want to be buyers during that phase of the game!
AOL’s Corp Dev Execs make $170K to $500K a year.
The CEO and senior VPS get millions of dollars.
WHY?
What a stupid price for bebo, no reasoning behind it, and they can’t say people didn’t warned them it is worth MUCH MUCH less than what they paid. Where is the penalty for all those Execs? Why aren’t they fired? This is part of our economic problems – these stupid MBAs keep getting fat salaries while public money is wasted on stupid acquisitions.
Yes, there are plenty smart MBAs out there, and smart Execs, but when something like this happens, with CLEAR understanding that it is way overpriced then people should be held accountable.
This makes me so mad, as everyone around me – VCs, business people, etc – said at the time that the price is wrong, that they will never be able to make a profit on this one…
BTW: Same thing will happen to any acquirer of heavily subsidized, mass reach, free web property – Youtube is still loosing money, Facebook as well…just insane..
I am surprised to see the sub revenue growth percentage so high.
Is that dial-up? Is that a misprint?
Tom – it’s negative 27%
(27%) = -27%
The use of parens is a widely used accounting notation for negative numbers
Remember, it was on the heels of Yahoo’s failed bid for Facebook at 1bln. Maybe AOL thouoght they were getting a steal at this price?
Fact is, EVERYONE in the industry knew it was a bas purchase. EVERYONE in the industry knows that users click on pictures and messages. AOL’s rad Platform A ad serving is going to do diddly squat on Bebo.
1) TW needs to dump AOL, so I agree with Sean that this looks like a pre-emptive to do that.
2) AOL execs should be asking if I want fries with my Big Macs – oh..hold on…better not let them near the cash registers…..
And a personal message to AOL execs who may be reading this and who were in on the Bebo deal….
..SUCKERS!!!!!!!!
Bebo is definitely worth more than $200M, the problem is that AOL is the company where good product go to die. I hope Bebo pulls through, and it should.
Think about it — AOL owns TMZ and such. Bebo is very much about spreading homemade video and music content. It would be great if AOL could leverage the property as a multiplier of its own content.
Bebo is no where close to the deadpool, IMO.
I don think that bebo was worth buying. It is amazing that companies will buy anything in the name of diversity.
Among Social Networking Websites size matters and the truth is Bebo has simply lost its momentum and is headed toward obscurity. Just look at the latest social networking traffic data from eBizMBA:
http://www.ebiz...cial-networking
at least the price paid for bebo wasn’t in the BILLIONS like CBS and Cnet.
Bebo is junk. All I was getting were spam invites. I stopped using it a long time ago.
Yuu’s are just freak’s Hha. shit bro yuu’s are like Gay and inmature
The way i see it Ernie Oporto is right ive been getting loads of spam invites of women more or less above my age i hardly even know and interestingly they are all linked to porn sites with only one profile pic and the same ” see my sexy pics here” line on nearly every profile that comes my way.
As it seems bebo has let itself stoop to allowing porno sluts to advertise themselves on the social networking site which angers me to an extent at nearly every day going through my emails only to find out its some porno slut wanting me to accept a friend request only to make her look popular and advertises porno pics via a link on their profiles.
This quite frankly must stop before a lot of people like me become pissed off and start major complaints as well as filing abuse of advertising porn on bebo ( via links on bebo profiles which still counts as being on bebo as the link is pasted on their said profile).