Valleywag
Surprise, surprise. Just as Photobucket talks to potential acquirers, there's a burst of press about the photo hosting service. The biggest web site you've never heard of, says Fortune's David Kirkpatrick. Worth $300m-$400m, Lehman Brothers, bankers hired to pitch the company, tells Michael Arrington. 17m unique visitors a month, according to Comscore. It's a veritable coming-out party for a previously obscure widget company. No doubt Photobucket will be acquired, probably for something like the price that the site has signalled through Arrington's Techcrunch. (By the way, when did bankers start sending messages through blogs?) But the venture is not, as Arrington says, cheap at the price. For three reasons.
1. Not as big as it looks. Most users come into contact with Photobucket because they're visiting a Myspace page, which has photos hosted on the service. There's no obvious Photobucket branding on these sections of the site, nor is there any opportunity for the venture to run its own advertising. It is only when a user decides to log in to Photobucket to upload or reorganize their own photos that the company can serve up its own ads. That's reflected in the revenues: $6.3m in 2006. Even with a valuation at the lower end of the range, $300m, that's a fearsome multiple.
2. Not as powerful as it thinks. Photobucket execs, rather unwisely, imply to Fortune that it has more loyalty than the social networks for which it hosts users' photos. "If one social networking site goes away and another comes up the user just moves, but their content stays with Photobucket," says the chief exec. But that could work the other way: I could absolutely imagine Myspace offering its own photo service to users, with the option to automatically slurp up all images from their Photobucket accounts, and move them over. Even if Myspace didn't offer that migration tool, the mere suggestion that it was building one would weaken Photobucket's bargaining position. This is one thing that Myspace's owner, News Corporation, with all its experience in TV production and distribtion, does know: how to squeeze a provider.
3. Serving photos costs more than you think. How curious that Photobucket leaked only its revenue numbers to Techcrunch. There is a reason that most photo ervices limit the number of images that users can upload, and most won't host images that are displayed on other sites. That's Photobucket's central proposition to users, that it will bear the burden of hosting snaps of their friends, but that the images can be embedded and displayed on popular social network sites such as Myspace. It's a great proposition, but an expensive one.
So, I'm sure Photobucket will sell. It does, unlike many ventures of the current web crop, actually have users. The venture will probably go to News Corp, owner of Myspace, because the links make Photobucket worth most to Rupert Murdoch's media giant; and worth less with that company as a disgruntled losing bidder. But the deal is only cheap in the minds of the bankers pushing the deal.
Comments
I can't believe all the fuss over an image hosting service. These kind of sites are way past their sell by dates: Flickr has moved in and taken over the "social" aspect which didn't exist before, and the individual sites (like Myspace etc.) much more commonly integrate image hosting.
About the only thing that Photobucket has any use for these days is for hosting eBay images for free.
Definitely not worth $300-400M; this is investment bankers gone wild, plain and simple.
Here's a breakdown of the growth rates and why it does not add up:
http://www.watchmojo.com/web/blog/?p=1406
Enjoy...
If someone told me they were building YouTube, I would have told them they were nuts (due to the bandwidth costs), but at least I could see the advertising angle.
The notion of a Photobucket just seems like operating a storage locker for free but make money by showing advertisements to the owner when they move things in and out of it. I would've said this is a dumb model, but WTF would I know?
I was surprised by the $6.3m revenue number. That is much lower than I would have guessed for a site getting 17m uv/mo. If Photobucket is truly worth $300-400m, that could mean the prospective purchaser must know how to monetize those numbers :)
I remember hearing that despite Diggs large traffic numbers, they barely broke even at $3m last year. Or maybe that was the year before. Anyways, moral of the story: traffic does not always equal proportionate revenue right?
Hmmmm, if PhotoBucket brings on 85,000 new registered users a day, that means it can generate, through co-registration alone, between $0.40 and $2.00 in advertising revenue per new user. And this potential revenue figure does not include potential earnings from return traffic. I don't know PhotoBucket's costs but they have significant opportunity to generate more revenue than they're already generating.
Look at Facebook's wildly successful photo product -- it came out of nowhere and, at least in the college demographic, blew everyone else away.
Not that I would expect MySpace to do the same... they don't exactly have a great track record of new product development. I'd argue what makes Facebook photos most valuable is how well it ties into the rest of the service.
Two points about the valuation:
1) Projected revenue for 2007 is 32M, so the multiple is not as fearsome as it seems. If this kind of revenue growth continues, a multiple of 10 (32 : 300) is OK.
2) Comparison to Youtube's acquisition. While simple pics are NOT as hot as videos, you can bet that the same users (35 million of them) who upload pics will soon be uploading videos too.
So the 300M price tag is not totally out of this world.
Plus, if the bankers say 300M, it's just an invitation for you to say 100M. You'll probably end up shaking hands at around 130M :)
Smart investors know good investments are rare opportunities. Owning the leader in the photo-hosting marketsector for a mere $10 per user aquistion is a smart play.
Likewise, building on that investment with another strong niche player-one currently serving Bay Area craigslist and ebay users-makes a smart play even smarter.
Let's walk through the numbers, apples to apples: If you search cragistlist "for sale" in the Bay Area you'll find ImageDeposit.com owns a 10% marketshare of PhotoBucket users.
ImageDeposit.com has 40,000 Bay Area users and 53,000 users in total. How did we get there in just three years? Well we're not giving away the secret sauce-just yet-but I will say this, our current acquistion costs are just under $0.25 per user. If you want to know how to make your smart investment even smarter-call Wayne Lambright at (415) 750-1921
@ Ian
I agree. My experience tells me the acquiring company has an idea for how to monetize the users by leveraging something they bring to the table. Could be expertise, an existing product/service line that becomes a backend upsell, or simply economies of scale that would make running the target company more profitable even if the numbers stayed the same.
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