Don’t forget the ghost of Bebo past

YOU can’t blame AOL boss Tim Armstrong for pursuing so-called “transformational” deals: he has little option. Once the undeniable king of the web, the firm is now heavily reliant on subscription revenues from its internet service, which are fast disappearing.

The surprise is that almost 4m Americans are still willing to pay an average of $18 (£11) a month – on top of the fee they pay their broadband provider – to access the internet with AOL. In 2010, those customers were worth around $1bn in sales, a staggering 42 per cent of overall revenues.

But AOL’s US customers are fast waking up. Between 2009 and 2010, the firm lost around 1m subscribers, worth around $400m in revenues. At this rate, the subscription business will be gone in just a few years.

That’s why Armstrong is desperate to build a content hub, and there are worse places to start than with Huffington Post, one of the more successful online-only publications.

AOL has been here before, however. Who can forget the ill-fated acquisition of Bebo in 2008, which saw the firm spend $850m on the number three social network before selling it for a reported $10m last year. The multiples for that deal – 42.5 times 2007 sales and 160 times ebitda – were simply ridiculous, based on massively over-optimistic assumptions about compound growth, which proved incorrect. The price paid for Huffington Post, which is expected to post revenues of $60m this year, is less absurd, at around 6.3 times sales.

But it is still pretty hefty for a firm that it is said to be turning just a small profit on such chunky revenues. Investors will be hoping AOL learnt its lesson last time round.


AOL is founded as Control Video Corporation by William von Meister, offering a games downloading service. Renamed Quantum Computer Services in 1985 and finally became America Online in 1991.

AOL buys web browser Netscape for $4.2bn (£2.6bn). But Netscape overtaken by Microsoft’s Internet Explorer.

AOL and Time Warner announce the world’s biggest ever merger – a staggering $350bn deal which made the new entity one of the biggest firms in the world.

The firm is beset by problems, culminating in a quarterly loss of $54.2bn in 2002 following massive writedowns at Time Warner.

AOL acquires social networking site Bebo, which is popular with teenagers, for a cool $850m. However, rival Facebook is steadily gaining users and soon eclipses Bebo, which looks set to become yet another poor acquisition.

Time Warner and AOL part company as Warner is forced to make writedowns totalling £100bn as the recession bites.

A wounded AOL sells Bebo to Criterion Capital Partners just two years after buying it for a reported sum of just $10m.