Hardly ever the news on an M&A transaction in Latvia first get released by major international news agencies and only then picked up locally. But this was the case last Thursday when the news that Ask.com, the US-based company owned by IAC/InterActiveCorp, had acquired Ask.fm, a Latvia-based Q&A website, took everyone by surprise. The transaction details have not been revealed, except that the original founders have agreed to sell and leave the company while Rubylight, a financial investor, will retain its 40% stake.
For those old enough to remember when and where the internet boom started, the acquirer, Ask.com, is probably better known by its old name AskJeeves, under which it started as a search engine in mid-1990s. Now, owned by IAC/InterActiveCorp, a media and internet company with more than 368 million unique monthly users, it is making its push into social networking area.
An interview with the founders, Ilja and Maksim Terebin, published in Time magazine in late June reveals that, since its founding in 2010, the site has grown to 120 million registered users around the world, of which 15 million alone are based in the United States, and with 42% of users being under the age of 17. Meanwhile, the transaction announcement suggests that Ask.fm has grown already to 180 million users in 150 countries.
Ask.fm’s financial statements for 2013 reveal that the company has recorded sales of EUR 9,150 thousand, net profit after tax of EUR 3,032 thousand and EBITDA of EUR 3,627 thousand. AS much as 87.2% of revenues have been generated from the sales of third party advertisements, with the rest having been received for offering mobile text messaging service on the site. Despite its apparent popularity in the US, in 2013 only 4.4% of revenues were generated from countries other than the European Union.
Valuing internet-based businesses (and even more so the social networking sites) has always posed a challenge because they tend to deflect any conventional rules and approaches. The Facebook stock market valuation at 128x times earnings demonstrates that there are no rational limits whatsoever in this.
While Ask.fm’s revenue structure is broadly in line with those of major social network operators, its revenues so far clearly have not reflected the size of its user base and its gross margin is below that of the major site operators. To compare, Twitter, a microblogging site, reports a gross margin of 63% and average revenue per user (ARPU) of EUR 0.86 (USD 1.15), while Ask.fm’s gross margin was 51% and ARPU in 2013 (assuming 120 million users) amounted to just EUR 0.08. With 271 million users Twitter is currently valued by the stock market at 28x its trailing 12 months sales, while LinkedIn, a professional social networking site which is still loss making (although reporting a gross margin of 87%), is valued at 14x its sales.
It is clear that the rapidly growing user base and favourable demographics have made Ask.fm into an attractive target. Meanwhile, the risk of not only maintaining and expanding that base, but also of monetising it at the levels comparable to other social networking sites will stay with the acquirer. Because of this we believe that the current value of Ask.fm could lie in the range between EUR 90 million (applying a multiple of 30x times, which approaches the industry average, to its 2013 earnings) and unlikely to exceed EUR 132 million (applying the Twitter’s multiple of 14x to its 2013 sales).
Given that in the Time magazine interview the founders indicated that they had sought advice on valuation and that “the company’s worth more than a hundred million dollars”, we may not be that far from the mark in our estimates. In any case, this is a real jumbo M&A transaction for Latvia in all respects.
(c) mergers.lv
cement silo manufacturers in india
cement silo manufacturers in india