Posted on January 17, 2008
Filed Under Bubble Watch |
Time Warner shareholders might be asking themselves that question if the rumors around AOL’s possible $200 million acquisition of Where Are You Now? (WAYN), a UK-based social network for travelers, are valid. With $4.5 million in annual revenues and 3.6 million unique visitors in November according to comScore, a nine-figure acquisition of WAYN would seem to provide a disappointing answer: the shitter.
AOL is not the only major Internet company apparently considering spending big money on the acquisition of a niche social network: TechCrunch has reported that IAC is “very close” to acquiring movie-focused social networking startup Flixter for more than $150 million. The price here looks unjustifiably rich as well: although Flixter had 12 million unique visitors and 358 million pageviews in May 2007, this had declined to 8.2 million visitors and 139 million pageviews by November.
While I’m generally a fan of niche plays, I’m never a fan of bubbles and if either of these rumored acquisitions is being negotiated seriously with a nine-figure price tag, it’s yet another sign of a bubble growing incredibly large. If AOL and IAC feel compelled to spend nine-figure amounts on properties with what I would consider moderate traffic and that, most importantly, appear to offer little hope of making a real contribution to revenue growth, one must question just how promising the future looks for these companies. Given the near-certainty of a recession and the impact that this is going to have on advertising-dependent businesses, I think smart players will conserve their capital and look to make any acquisition moves once these vulnerable startups start feeling the pain. After all, the wise say, “Buy when there’s blood in the streets.” With idiotic nine-figure acquisitions of second-tier social networks, AOL and IAC would essentially be saying “Let’s buy before the first drop hits the pavement!”Print This Post