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Social Networking  “ Show me the money” Fred Destin Montreux, 15 November 2007
Social networks are real – usage isn’t hype 1 <ul><ul><li>Social networking sites have attracted over 300M users world-wid...
Huge untapped potential in advertising revenues 1 Awareness Education / Information Branding Direct response  (leads, sale...
Social networks change behaviour and influence commerce 1 <ul><ul><li>Traffic to UK online retailers from social networkin...
With no hard financials, how do acquirors value social networks today? 1 <ul><ul><li>Usage statistics have a clear impact ...
Valuations are starting to normalise (thank you Longacre/Jefferies) 1 Statistics US$ per Company Valuation date Enterprise...
Hold on to your Social Network: the bigger exits are yet to come 1 Annc Date Target Acquirer Target Description/Comments C...
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A set of supporting slides for my closing remarks and the European Tech Tour's Web and Communities event in Nov 2007

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Fred Destin - Tech Tour: Show Me The Money

  1. Social Networking “ Show me the money” Fred Destin Montreux, 15 November 2007
  2. Social networks are real – usage isn’t hype 1 <ul><ul><li>Social networking sites have attracted over 300M users world-wide </li></ul></ul><ul><ul><li>Social networks are 1 in 20 UK internet visits </li></ul></ul><ul><ul><li>MySpace has over 100M registered users and is 2nd largest web site in page views </li></ul></ul><ul><ul><li>85% of US college students have Facebook profiles </li></ul></ul><ul><ul><li>More than 90% of UK teens use social networks </li></ul></ul><ul><ul><li>In US, 80% of young adults, 60% of teens and 30% of adults </li></ul></ul><ul><ul><li>The top 20 social networks receive over 15% of all attention spent online in US </li></ul></ul><ul><ul><li>MySpace has 329 monthly page views per unique visitor, more than Google (273) and Yahoo! (223) </li></ul></ul><ul><ul><li>60% of Facebook users log in daily and spend an average of 20 minutes </li></ul></ul><ul><ul><li>Average UK social network visit duration was 25 minutes, 250% average </li></ul></ul><ul><ul><li>StudiVZ had 4.5B page views in September, up from 2.5B in July </li></ul></ul>Source: ComScore 2007, Forrester 2007, Hitwise 2007, Merrill Lynch 2007 VERY LARGE ABSOLUTE SIZE DEEP REACH IN TOTAL POPULATION STICKINESS IS UNPRECEDENTED
  3. Huge untapped potential in advertising revenues 1 Awareness Education / Information Branding Direct response (leads, sales, etc.) Internet $23.7 bn Print $147.6 bn Outdoor $23.0 bn TV $162.1 bn DM $166.5 bn Radio $33.2 bn Source: eMarketer 2007, Merrill Lynch 2007, Initiative Spheres 2006 <ul><ul><li>Online advertising in general is tiny relative to the importance of the medium </li></ul></ul><ul><ul><li>Social networking sites command much more attention (15%) than their current share of online advertising (3%) – and they can target ads well </li></ul></ul><ul><ul><li>FACTS: </li></ul></ul><ul><ul><li>Advertising on social networks in US is $900M in 2007 and growing at 100% to $1.8bn in 2008 </li></ul></ul><ul><ul><li>US social network advertising revenues will grow to $3.6bn by 2011 </li></ul></ul><ul><ul><li>MySpace advertising revenues were $500M in 2007 and expected to grow to $930M </li></ul></ul><ul><ul><li>Facebook will have ad revenues of $400M in 2008 </li></ul></ul>
  4. Social networks change behaviour and influence commerce 1 <ul><ul><li>Traffic to UK online retailers from social networking sites was up 153% 2006-YTD2007 </li></ul></ul><ul><ul><li>TopShop.co.uk‘s #2 referring website in April 2007 was MySpace (+500% YoY) </li></ul></ul><ul><ul><li>Social shopping communities such as Threadless or LaFraise are generating significant revenues </li></ul></ul><ul><ul><li>Mobile social network content delivery will generate revenues of $500M in 2007, expected to rise to $5.7bn in 2011 </li></ul></ul><ul><ul><li>Mobile social network content downloads will increase from 200M in 2007 to 9B in 2011 </li></ul></ul><ul><ul><li>Korean social network Cyworld is the second largest retailer of MP3s after iTunes, having sold more than 160M songs directly to its members </li></ul></ul><ul><ul><li>Average online video consumer watches 100 minutes a month </li></ul></ul><ul><ul><li>DailyMotion has grown from 2 to 40M uniques in a year and attracts c. 55% of French broadband users each month </li></ul></ul>SOCIAL SHOPPING WILL DRIVE ECOMMERCE MUSIC & VIDEO CONSUMPTION WILL CHANGE SIGNIFICANTLY MOBILE IS A HUGE POTENTIAL REVENUE GENERATOR Source: Juniper2007, Merrill Lynch 2007, proprietary data
  5. With no hard financials, how do acquirors value social networks today? 1 <ul><ul><li>Usage statistics have a clear impact on revenues and profitability </li></ul></ul><ul><ul><li>Best indicators for advertising revenue are absolute monthly unique visitors (impressions per person) and monthly page views (sell-through) </li></ul></ul><ul><ul><li>Good indicator for strategic value is number of registered users (depending on the service) </li></ul></ul><ul><ul><li>Value per unique then gets assessed against operational leverage and likely EBIT potential of business model </li></ul></ul><ul><ul><li>EXAMPLE : Club Penguin </li></ul></ul><ul><ul><li>700K registered users, 10M uniques and 500M page views </li></ul></ul><ul><ul><li>$350M TEV implies $0.69 per page view and $35 per unique </li></ul></ul><ul><ul><li>Double these figures for $700M TEV with earn-out </li></ul></ul><ul><ul><li>However, strategic value is huge given young demographic: $500 per registered user before earn-out! </li></ul></ul>Source: Jefferies 2007, Merrill Lynch 2007, Atlas
  6. Valuations are starting to normalise (thank you Longacre/Jefferies) 1 Statistics US$ per Company Valuation date Enterprise value ($m) Monthly page views (bn) Unique monthly visitors (m) Registered users (m) Monthly page view Unique monthly visitor Registered user MySpace Jul-05 580.0 7.8 17.7 22.0 $0.07 $32.77 $26.36 Current 3,750.0 50.6 105.7 75.0 $0.07 $35.48 $50.00 Facebook Apr-06 525.0 7.6 12.9 7.0 $0.07 $40.70 $75.00 Current 15,000.0 33.0 69.3 24.0 $0.45 $216.45 $625.00 Friends Reunited Dec 05 (w/o earnout) 208.0 0.2 5.1 16.4 $0.93 $40.78 $12.68 Dec 05 (w/ earnout) 303.4 0.2 5.1 16.4 $1.35 $59.49 $18.50 Club Penguin Aug 07 (w/o earnout) 350.0 0.5 10.0 0.7 $0.69 $35.06 $500.00 Aug 07 (w/ earnout) 700.0 0.5 10.0 0.7 $1.39 $70.13 $1,000.00 Last.fm May-07 280.0 0.1 11.5 15.0 $2.37 $24.35 $18.67 iVillage Mar-06 616.0 0.3 18.2 NA $2.46 $33.85 NA AuFeminin Jun-07 382.3 1.9 20.0 NA $0.20 $19.14 NA StudiVZ Jan-2007 (w/o earnout) 44.7 1.3 2.2 NA $0.03 $20.52 NA Jan-2007 (w/ earnout) 75.9 1.3 2.2 NA $0.06 $34.88 NA Fotolog Aug-07 90.0 5.3 15.5 10.0 $0.02 $5.81 $9.00 Median $0.69 $34.88 $26.36 Mean $0.79 $34.49 $238.74 High $2.46 $216.45 $1,000.00 Low $0.02 $5.81 $9.00
  7. Hold on to your Social Network: the bigger exits are yet to come 1 Annc Date Target Acquirer Target Description/Comments Curr Bid Value (m) Stake (%) Ent Value (m) EV / LTM LTM Margin EV / 1-Year Forward Forward Margin Sales EBITDA Sales EBITDA Social networking 27/08/2007 Fotolog HiMedia Photo sharing community website USD 90.0 100% 90.0 NA NA NA 19.4x NA NA 01/08/2007 Club Penguin (1) Disney Online community for children USD 350.0 100% 350.0 7.0x NA NA 5.8x 11.7x 50.0% 01/06/2007 AuFeminin Axel Springer Online women’s community EUR 280.0 100% 280.0 20.5x 36.1x 57.0% 12.3x 20.4x 60.0% 30/05/2007 Last.fm CBS Corp Online music community site USD 280.0 100% 280.0 NA NA NA NA NA NA 09/01/2007 Playahead Modern Times Group Swedish online social networking community SEK 102.0 90% 113.3 4.2x NA NA NA NA NA 08/01/2007 MyBlogLog Yahoo! Blog-based online community USD 10.0 100% 10.0 NA NA NA NA NA NA 03/01/2007 StudiVZ (2) Holtzbrinck German-based online community for students EUR 50.0 100% 50.0 NA NA NA NA NA NA 06/03/2006 iVillage NBC Universal Women's community site USD 600.0 100% 600.0 6.1x 32.5x 18.6% 5.3x 23.9x 22.2% 06/12/2005 Friends Reunited (3) ITV Online community site GBP 120.0 100% 175.0 10.2x 18.8x 54.2% 7.0x 13.5x 51.7% 18/07/2005 Intermix Media News Corp MySpace USD 580.0 100% 580.0 7.3x 53.2x 13.8% 4.9x 37.9x 13.0% 20/06/2005 Neopets Viacom Virtual pet community USD 160.0 100% 100% NA NA NA NA NA NA 25/10/2004 Classmates Online United Online Online community-based networking USD 100.0 100% 100.0 1.4x 8.7x 15.9% NA NA NM 24/05/2004 Tickle Monster Worldwide Matchmaking and social networking services USD 93.9 100% 93.9 3.8x NA NM NA NA NM Median 6.8x 35.4x 18.6% 6.4x 20.4x 50.0%
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A set of supporting slides for my closing remarks and the European Tech Tour's Web and Communities event in Nov 2007

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