Social networks

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Valuing a business as lightly spun as a “social network” requires bankers to perform marvels of prestidigitation. Yet that is the feat facing ITV, the struggling UK broadcaster, as it considers a sale of Friends Reunited. ITV bought the website, which helps former schoolmates reconnect, for £175m in 2005 in an attempt to boost its online presence. Now ITV may wave goodbye to Friends.

How to value the website and its 19m registered users? MySpace was the world’s biggest and fastest growing social network with about 17.7m unique monthly visitors when News Corp paid $580m – slightly more than $32 per monthly visitor – for it in 2005. The then-staggering sum looked like a bargain two years later after Facebook drew a valuation of $15bn, or $204 for each of its about 73m monthly visitors, when Microsoft bought a small stake (Facebook’s rumoured internal valuation suggests its monthly users are now valued at a more reasonable $20 each). Bebo, a rival, sold to AOL last year for $850m, or $38 per user. Take the average of these valuations, and Friends – whose monthly visitors sank to only 1.7m in December, according to Comscore – would be worth little more than £50m.

It gets worse. Audience size is a limited measure of value. Yes, advertisers want eyeballs. But how users engage with a site is more important to putative acquirers. Nielsen estimates the average user spent only 15 minutes on Friends Reunited last month compared with 47 minutes on MySpace, more than 90 minutes on Bebo and almost six hours on Facebook.

Such engagement is why Twitter, a web messaging service with no revenues to speak of but millions of addicted users, was able to raise more than $35m in a recent venture round. Friends, by contrast, makes money. But, with the ad market reeling, buyers in retreat and valuations falling, ITV will find it a tough sell.

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