Friday, October 07, 2005
AOL + Weblogsinc and 2.0 Content Validation
OK. Let's do some basic deal math and examine whether this really validates 2.0 content from a financial perspective. Weblogsinc gets acquired at a revenue multiple of ~ 20ish. Now, let's factor in some synergy benefits. How much can AOL realize almost costlessly from sending new eyeballs to Weblogsinc sites?
For now, let's assume it can double eyeballs (and double revenues - we'll assume linearity as well). This means an effective revenue multiple of about 10. Now, relative to Media 1.0, which trades at ~ 1-4 times revenues, that's certainly a nice multiple.
But I think relative to recent Web 2.0 acquisitions, that's not huge. The most obvious example is Skype, at 35ish. It's not huge relative to the usual suspects, either (Google, Yahoo, eBay; 17, 9, 14ish).
So is this really validation of the 2.0 content space? Well, I think it depends on your financial perspective; your appetite for risk, and return.
Most investors are leery of content plays because it's hit-driven and dominated by idiosyncratic risk. I don't think this multiple really justifies the risk in most investors' eyes (it certainly wouldn't in mine - what this outcome tells us is that you need a strategic buyer who can extract huge synergy gains to make an exit viable, even for a relatively successful 2.0 content play like Weblogsinc). If you're putting money into Web + Media 2.0, I don't think is a huge validation.
On the other hand, if you're an entrepreneur who's bootstrapping things, like Calacanis or Denton (or even Rafat :), these are nice numbers which represent a very nice return - but their risk profile is notably more aggressive.
I also agree with Denton's thoughts - if current growth is anything to go by, maybe exponentially more value can be realized by waiting just a lil longer.
Either way, congrats to the team at Weblogsinc - they certainly deserve it.
did you come across this news yet, wondir got bought since you blogged about weblogs only I thought this might have not reached you.
Wondir - a big favourite of yours got bought.
The problem with your analysis is that none of these valuations are "validated" until these buyouts (Skype, Weblogsince...) are shown to have been profitable. The fact that that a weakened AOL jumps into blog-content with a small-change investment doesn't mean anything yet, and we won't know what it means until a few years from now when we see what kind of ROI they got. Same with Skype.
This isn't the first time you've talked about validation this way, but it seems inappopriate