Friends Reunited - is it worth just £20M?

Following on from my blog of yesterday on the potential for a sale by ITV of Friends Reunited, I note that JP Morgan is suggesting that the business is worth  just two times Friends Reunited revenues of £18.9 million, making the business worth approximately £38 million on paper.  Well valuations are calculated in many different ways, whether it is a multiple of turnover as in the case above or as a multiple of earnings or profits. When I looked at the Friends Reunited books back in 2003, the percentage profit was phenomenal, in the region of 80% plus, if my memory serves.  This was due to the fact that costs were very tightly controlled amongst the then 10 employees including the founders, and the low cost of the infrastructure.  It would be interesting to know how the cost base has changed since 2003 after Mr Murphy's involvement and since the unique user numbers are well down on three years ago when it was sold to ITV. My belief is that Friends Reunited still has a very strong web and non-web brand recognition and has the potential to make a very strong financial return whoever decides to buy it, if they are able to give the management the freedom to develop the business.  It has been suggested that Friends Reunited are in the same space as MySpace or Facebook.   Well it is worth noting that neither of these companies are profitable yet and keep generating huge losses whilst having multiple billion dollar price tags bandied about.

Friends Reunited is a very sound business and has extended well into the genealogy and dating markets.  It has the potential to make profitable business and out live some of its more flashy rivals and maybe even ITV!

As for JP Morgans, well they announced a $1.3 billion loss in January 2008.  I wonder what they will come out at the end of the credit crunch and given that they claim to have avoided the worst of the problems seen elsewhere.

Friends Reunited would probably make a very good fit for Barry Diller's IAC, which also owns Ticketmaster and Ask.com and continues to acquire assets being knocked down and sold by less able corporations.  Just as long as they let the Friends Management run the show, the business model could make an excellent return for them.  At £20 million Friends Reunited would be a steal.