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Yahoo Lost Face Losing Facebook

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When Facebook reputedly rejected Yahoo’s billion-dollar buyout offer, Yahoo retreated to the sidelines. The missed opportunity may be one that did not really exist.

Yahoo Lost Face Losing Facebook
Yahoo Lost Face Losing Facebook
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Facebook opened its doors to college students, quickly expanding from its Ivy League roots. Later the site allowed certain businesses to participate, then followed that by making Facebook available to anyone who wanted to signup.

As the numbers surged, so did interest in acquiring Facebook and its lucrative audience. Yahoo pulled out when the discussion hit ten digits. They probably could have spent more to seal the deal, but chose not to ante more cash to the pot.

That decision has been compared in some quarters to their failure to snap up Google several years ago when they had the opportunity. That past misstep came up in a report by Needham analyst Mark May. He thinks Yahoo blew a significant chance to gain from Facebook’s growing popularity.

In brief, May thinks Yahoo guessed wrong on Facebook’s growth:

Simply put, the assumptions/metrics used in this analysis have proved too conservative. For instance, the analysis assumed 22.0 million registered users in 2007 and total pageviews per active user per month of 1,061.

Based on press reports and on our industry contacts, we believe Facebook recently surpassed 21 million registered users (with a 90%+ monthly active rate) and is generating 1.5 billion total pageviews per month.

That would imply 2,329 average monthly pageviews per active user – more than double Yahoo!’s reported assumption of 1,061.

Determining just where Yahoo should have placed Facebook’s value is open for debate. May doesn’t mention this, leaving bloggers like Barron’s Eric Savitz to suspect a much higher figure:

I suppose a simplistic approach would be to simply double the original Yahoo valuation, and assume it is worth north of $3.2 billion. Facebook investor Peter Thiel has said the company is worth $8 billion.

Without any financial data, it is a little hard to know. The interesting question is whether Facebook in the long run will attempt to come public – or whether someone eventually is going to come up with a boatload of cash and buy them.

Ashkan Karbasfrooshan thinks there is something to the possibility of Facebook testing the IPO waters. He makes the argument that "Mark Zuckerberg’s company will file for an IPO sometime in 2008."

In one point, Ashkan noted the $100 million in revenue Facebook is on target to generate is the magic number when companies start to think about going public. There is an important caveat to Facebook’s revenue, which he also highlighted:

But if you put two and two together, you will see that MSFT accounts for the lion’s share of Facebook’s revenues,

- "Facebook is on target to generate $100 million in revenues this year." – "The MSFT deal is reportedly guaranteed to deliver about $200 million in ad revenue through 2008," or roughly $50-75M per year (I guesstimated the yearly breakdown).

Through 2008, Facebook has time to build up its ad sales and create demand for its stock before going public (or possibly being acquired). The price tag could end up much higher than the one that gave Yahoo pause. If the plan all along was for Facebook to go public, Yahoo may not have really missed out on anything, even though it will feel that way.

Yahoo Lost Face Losing Facebook
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