Caris & Company analyst Tim Boyd addresses clients on Yahoo!'s (YHOO) discussions to acquire social networking site Facebook. His note follows:
According to an article in today’s Wall Street Journal, Yahoo! (YHOO) is in “serious discussions” to acquire social networking site Facebook. Facebook’s asking price is rumored to be in the range of $1B – nearly double the $650MM that NewsCorp (NWS) paid for MySpace. Our back-of-the-envelope math suggests that (a) $1B does seem like a reasonable price and (b) the perceived value of social networking sites has increased 6x to 8x over the last year.
EV/EBITDA
The WSJ article indicated that Facebook is “approaching $100MM in annual revenues.” Assuming a 65% EBITDA margin (although we are inclined to believe that Facebook’s EBITDA margins are well-above both Google’s and Yahoo!’s due to a lack of public company expenses), a $1B purchase price implies a 2006 EV/EBITDA multiple of 15x. To put this in perspective, YHOO currently trades at 12x 2006 EV/EBITDA, Google (GOOG) at 24x, so 15x seems like a reasonable multiple.
Price Per Visitor/Page View
Another way to look at this is the amount Yahoo! would pay per unique visitor and page view:
On this basis, it appears that Yahoo! would be paying 6x to 8x what NewsCorp paid for MySpace – a hefty premium. Some premium is, we believe, justified considering the far-more-targeted user demographic offered by Facebook, but this analysis shows just how much the perceived value of social networking sites has risen over the last year.
We maintain our 2*/Above Average rating on YHOO shares.
YHOO 1-yr chart:
