Must be nice to turn down $1 billion
October 29th, 2006 | by mbhunter |If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
This left me shaking my head. Management at Facebook.com turned down a cool one-billion-ish buyout.
Jimmy Napier must be shaking his head, too. He was known as saying “When someone puts a million dollars in your hand, close your hand.”
Well, if Yahoo! wants to put a billion dollars in your hand, shouldn’t you not only close your hand but run away with it as fast as you can? Apparently not, according to the actions of Facebook.com.
Now Facebook does have a two-digit Alexa ranking and a good chunk of the social networking market (trailing MySpace by a wide margin), and in light of Google’s recent buyout of YouTube for $1.65 billion, maybe Facebook is a little jealous. I don’t know.
It seems almost like a Deal or No Deal kind of risk to take. In the late 1990s folks were throwing money at every dot-com idea for fear of missing out. That went bust. Now it’s happening again with Web-2.0 companies that have a large emphasis on user-generated content. Folks are throwing money at these companies again. This stretch of insanity is going to end, too, but when? Perhaps there’s $5 billion in the suitcase. The banker may offer $2 billion next time around, or maybe $100,000, or $5. Facebook seems to want to go another round.
Another point to note is that Yahoo! owns Flickr.com, the popular photo-sharing site. I’d probably be at least a little concerned that Yahoo! would try a Facebook-type site itself. Yahoo! isn’t exactly hurting for expertise in the whole website thing.
So, is Facebook’s move smart or stupid?
6 Responses to “Must be nice to turn down $1 billion”
By Flexo on Oct 29, 2006 | Reply
I don’t think I’ve ever visited Facebook.com, but I can’t imagine that whatever they have there is worth $1B. I think we’re seeing some serious overvaluation at the moment in the market in general… I would have taken the money and ran. They’re some greedy mo-fos.
On the other hand, if they really think their business is worth that much or more, they should be getting the best advice in the world before making these decisions, so a number of people must agree that the business is worth that much or more.
By Lazy Man And Money on Oct 29, 2006 | Reply
Well if you use YouTube as the measuring stick, I think that Facebook is worth about 3B. My rationale here is that YouTube never really figured out a way to monetize their traffic. Facebook on the other hand, has something like 95% of every high school and college student in the US. It’s pretty easy to come up with ads to target there. It can be much more targettable than MySpace, where anyone of any age has an account.
I don’t know how Alexa factors in the time spent there, but it’s literally hours a day for the school kids.
According to their wikipedia entry they bring in about 1M a week or $50M a year (we’ll just round down). I think that would make very profittable meaning that they don’t need to sell like many of the companies in Web 1.0. If there weren’t profitable it would be really ridiculous, but as long as they making money and growing, maybe it’s worthwhile to roll the dice.
Here’s a parting thought… What if you put a billion dollars in the hand for a 100% share in Google? Given their market cap and cash on hand, they would chuckle.
By mbhunter on Nov 1, 2006 | Reply
Good points.
It would be dumb to sell Google for $1B. A P/E of 20 (which would be what Facebook’s valution would be at $1B) is not extravagant, but it’s not Buffett cheap either.
By Dimes on Nov 3, 2006 | Reply
Facebook isn’t worth one billion dollars, sorry. Those guys who are holding out will probably end up with nothing (and really, will anyone be worse off?).
By Paige on Nov 6, 2006 | Reply
Facebook is worth the money because it’s an extremely personal database of the likes and dislikes of young, rich, and educated North America. If a company wants unlimted access to this demographic (and they do, and they will) Zuckerberg will get the $2bil he’s holding out for…
By Matt on Nov 10, 2006 | Reply
Ultimately, in a business buyout, failure is often more about problems with the structure of the deal and other fine-print items than with the big headline sum. Without seeing the terms and being familiar with Facebook’s operations, I couldn’t say whether it’s a bad decision or not…I defer to their board and executive team as more knowledgeable about the facts than me.
A few companies are indeed being bought out for more than they appear to be worth on paper. But I don’t think the Facebook deal would have been one of those. Facebook is in the black. They don’t _need_ to get bought, because they’re not facing an imminent cash crisis like so many late-stage dotcoms were.
I can easily imagine a combination of business structure and deal structure where, if offered $1B for my business, I’d pass. Of course, I don’t have a business anyone would pay $1B for, but I do have a profitable and growing enterprise, and I do know how counterintuitive some of those valuation decisions can be…and how tricky the fine print can be in the deals.