Photobucket Was A Steal v. Google/YouTube

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By almost any measure, MySpace got Photobucket for an absolute steal when compared to the Google YouTube deal. The companies are somewhat comparable – both have very large libraries of user-created videos, and both built their business on the back of MySpace. Photobucket also has a huge library of shared photos, a business YouTube never entered.

Google paid $1.65 billion in stock for YouTube. By the time the deal closed, the Google stock was worth nearly $1.8 billion. Photobucket is being acquired for just less than 1/5 of that – $250 million plus an earnout of up to $50 million

At the time of the announcement of their acquisition in October 2006 YouTube had very little revenue. Photobucket, however, is on track to blow through their projection of $25 million this year.

Also, the relative sizes of the two companies aren’t that far off. At the time of the acquisition, Comscore suggested that YouTube had approximately 25 million U.S. monthly visitors. Today, Photobucket has around 20 million U.S. monthly visitors, or 80% of what YouTube had when it was acquired.

Photobucket has 40 million registered users and is gaining another 85,000 or so per day. Their users are highly active, and upload a lot of content to the network. YouTube’s registered users were far below Photobucket’s 40 million at the time of their acquisition. YouTube had (and still has) a lot of traffic coming to the site to view videos, but far fewer users actually creating and posting content.

Leaving revenue aside, the traffic numbers indicate a comparable price of $1.3 billion for Photobucket, 4x the price they actually received from MySpace. To look at this another way, YouTube was paid about $67 per unique visitor. Photobucket got just $13.

Did Google overpay for YouTube? Did MySpace get Photobucket for a steal? Perhaps both. But in the end, being no. 1 in a category means you get a premium on acquisition. In the case of YouTube, that premium seems to be about 4x.

Another factor: Photobucket just didn’t generate the bidding hype that YouTube saw. It looks like the final bidders were IAC and MySpace, with a number of other bidders falling off in the last few weeks (perhaps spooked by the MySpace blockage of Photobucket videos).

In a year or so this deal is likely to look as brilliant for NewsCorp (which owns MySpace) as the MySpace acquisition was. Some would argue that they play dirty poker, but shutting Photobucket down at a crucial point in the acquisition negotiations was a brilliant move, and may have shaved hundreds of millions of dollars off of the purchase price.

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