Friendfeed is overvalued ?

By now everybody knows about the Friendfeed acquisition by Facebook. The news came out in TechCrunch. Since then a lot has been said and lot more will be said about this deal (for the most interesting articles on the topic, you can click on the pearl at the end of this post)

I'll just focus on the valuation aspect.

$50m for roughly 1m users that makes a multiple of... $50 per user. For Friendfeed service itself, that is very high considering 1) that Friendfeed has been flat in user growth for the past 6 months and 2) that Friendfeed is not a market leader in its space. In a previous post on Facebook valuation, I had done a small benchmarking showing that user valuation multiples for social networks ranged from $25 to 40. Facebook valuation multiple at the time was at $50 per user.  Since then, Facebook valuation multiple went down to rougly $25 per user ($6.5bn total valuation mentioned in the various FF-FB posts and 250m users). In other words, Facebook is paying a higher multiple for Friendfeed than their own...Strange.

Of course, I know that everybody says that the rationale for the deal is not the service and its users  but the team. But with that same amount of money, couldn't you put together a "star-tech-team" paid at huge salaries ? To put this in perspective, let's say the 14 Friendfeed engineers stay on average 3-4 years with FB, that would make an average salary of $ 900k-1'200k per year per engineer... Unless I miss a major point, that's enough to attract tech-stars, no?

  

Comments

[Barberousse]

Dear Wallen,

I was expecting your post on this subject ;-) and it is, as usual, very interesting!

I think that the success FF had those last weeks in France demonstrate its huge potential, among internet "lead users" and FB is perfectly able to scale it up.

The value of FF should tharefore be explained by the value of Synergies (features devlopment, go to market timing, Image among opinion leaders,...).

Finally, I agree with you, FB is not buying a subscriber base, because, the 1 m FF users are certainly already FB users.

[Wallen's]

Thanks Barberousse. Indeed, FF had recent success in France but at a global scale it faced a flat growth curve. As to synergies, there will be some on specific features that can be moved to FB (e.g.,search) but it will be very difficult to integrate FF into FB. I doubt that it is the plan. Most commentators think that FF as a service will slowly disappear. We shall see.

[Mark MacLeod]

There are two factors that may have contributed to the premium:

Strategic value: keeping this asset away from Google and Twitter.

Maintaining good relations (for future buys) with the tier 1 VCs that backed Freindfeed by paying their target cash on cash multiple

[Wallen's]

@Mark, indeed the strategic value can explain a lot of this premium (as an ex-management consultant, I should have thought of it... ;-))