I had received a fairly reliable tip a couple of weeks ago that Yahoo was in talks to buy Foursquare. The conventional wisdom is that new Yahoo CEO Marissa Mayer is seeking a meaningful acquisition to mark the beginning of her tenure and give the company some new energy and momentum. Foursquare, given that it straddles social, local and mobile, is a logical choice.
My article sparked a discussion on Twitter about the “true value” of Foursquare. Foursquare was valued at roughly $600 million after its last funding round. But some people are quite skeptical that it’s worth anything like that.
In my article I speculated that an acquisition price would be at least several hundred million up to $1 billion for Foursquare. However Yahoo’s decision today to return most of the proceeds of the sale of half of its stake in Alibaba to shareholders suggests that no such major acquisition (i.e., Foursquare) is coming.
The more than $7 billion sale will net Yahoo about $4.3 billion after taxes. Of that Marissa Mayer said late today (via an internal company memo) that $3.65 billion will be returned to shareholders and Yahoo would keep “a meaningful amount in the company to invest in our future.” That turns out to be about $650 million.
Yahoo’s cash on hand at the end of Q2 was just under $2 billion. That would mean Yahoo now has something like $2.5 billion in cash on hand or cash equivalents. Google has $15 billion in the bank. And of course Apple has something like $120 billion in cash.
Beyond the idea of appeasing shareholders and/or making good on earlier promises the decision to “give back” most of the money could be a reflection of the collapse of talks with Foursquare (pure conjecture on my part) or reflect that Foursquare is simply too expensive for Yahoo at this point.
What are your thoughts? Do you agree with my conjecture?
Do you still think there will be a significant Yahoo acquisition in the near term? If so, what company now is a good candidate?
There are certainly lots of lesser-known startups that could bolster Yahoo in terms of functionality and/or personnel — but they won’t make the kind of splash that buying Foursquare would have.
September 19th, 2012 at 12:30 pm
Does it seem odd that AT&T sells off YP for around $2 Billion with actual revenue of $3.3 Billion last year, but that Foursquare with no revenue could be sold for $1 Billion?
This doesn’t stack up to me. Might be a sign that the hype created by the purchase of Instagram for $1 Billion (now $700m or less thanks to the falling Facebook share price) was just that …. hype.
September 19th, 2012 at 12:50 pm
Agree. But part of the valuation is about future potential. It’s not entirely rational. Most VCs would rather invest in business that have potential revenue vs. actual revenues because actual revenues pop the balloon of future fantasy revenues.
Instagram was bought because: it’s mobile, it was growing incredibly fast (among teens/tweens especially) and it was a threat to Facebook. However it’s just the latest hot network. Two years from now it could be a memory for many of its current users.
September 19th, 2012 at 1:00 pm
[...] the route to it may not be the optimal route.”Looks Like Yahoo Won’t Be Buying Foursquare (Screenwerk) Greg Sterling: Yahoo’s decision today to return most of the proceeds of the sale of half of its [...]