In Bebo, AOL landed what News Corp., Google, Yahoo and CBS didn't want
Before agreeing to sell to AOL for $850 million, Bebo president Joanna Shields tried to sell the company to News Corp., Google, Yahoo and CBS. Didn't happen. Bebo gets too little traffic in the U.S., sources from those companies told BoomTown. Microscopic revenues probably didn't help Bebo reach its hoped-for $1 billion pricetag, either. In 2006, Bebo revenues were $7 million, with just $3 million in EBITDA — Wall Street's favored measure of operating profit. Last year, total revenues climbed to $20 million, $5 million in EBITDA. So that's a price-to-earnings ratio of 160. Oh, maybe AOL CEO Randy Falco's valuing it on growth, you say? Let's run those numbers.
For fast-growing stocks, analysts sometimes calculate PEG, or the price/earnings to growth ratio. Instead of valuing a company on current earnings, PEG attempts to take into account future earnings. Bebo's earnings grew 67 percent last year. That gives Bebo a pricey PEG of 2.38. Google's is running at 0.61 after its recent stock drop. Why didn't AOL just hold onto its Google shares instead of selling them in 2005? That way, it would have at least kept a piece of Orkut.