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Social Networking - Thursday, April 5, 2007

Wall Street Analyst: Yahoo Choked. Should Have Bought Facebook For $1.6B. It Now Wants $8B.

Read more analysis of public equities at our brother site tech:stocker.

An analyst at Needham & Co. is playing Monday morning quarterback second-guessing Yahoo’s folding on its drive to buy Facebook. Yahoo bid $1B which made FaceBook laugh. Techcrunch published an internal Yahoo document showing that Yahoo had internally decided to bid up to $1.62B, but talks broke off before they could make the bid, perhaps because of a culture clash between Yahoo execs and Facebook's founder.

Needham says that Yahoo would have been smart to bid the $1.62M or more. The problem was that Yahoo low-balled its financial analysis of Facebook. Yahoo's bean counters underestimated Facebook's traffic ramp-up by half. They assumed monthly page views p/user of 1,061 and the real number is 2,329. If Yahoo had gotten the math right they would have felt more comfortable with higher bids.

Needham provides more evidence that Facebook was a must have for Yahoo. Read it and weep Terry Semel:

+ Facebook recently blew past 21M registered users an its serving 1.5B page views a day.

+ ComScore says that 93% of the registered users log on at least once a month and 60% log in at least once a day.

+ Facebook is the 36th most visited site on the Web and, to our surprise, the number one photo site with over 6M uploaded daily.

+ eMarketer calls Facebook the most visited site on the web for those aged 17-25.

+ A Student Monitor survey found that Facebook is the second-most “in” thing among undergraduates - a dead-heat with beer. Apple's iPod ranked number one.

+ Says Needham, “Facebook is no doubt one of the most important Internet companies to have been created in the last five years. Yahoo must take steps to gain a real leadership position in social networking or risk not participating in what could be one of the leading sources of growth in the consumer Internet sector over the next five-plus years.”

+ To add insult to injury, Facebook investor and board member Peter Thiel told Bloomberg in December that Facebook is worth at least $8B. At that level or close to it, Yahoo! might be priced out of the market.

tech:stocker's take: Needham takes Yahoo to task for not buying Facebook, but doesn't every big Net M&A department look dumb? Microsoft, IAC, Yahoo, Fox, Viacom and a couple of others all could have bought Facebook for what now looks like a pitence.

That said, while Yahoo has had some M&A success with social media thanks to Flickr and del.ico.us, the company would be a different beast today if it owned Facebook and was able to not screw it up. The new generation would think of Yahoo as the cool company that brings them FaceBook, rather than as the old company that Google always stuffs. Cool does bring traffic and money online.