Silicon Alley Insider is asking an uncomfortable question—or rather, at least it’s uncomfortable for AOL to think about: when will the company start writing off its $850 million purchase of Bebo? It certainly doesn’t look good.
“Per [Time Warner's] most recent SEC filing, the company is booking almost all of the purchase price—$760 million—as goodwill. Another $86 million went to ‘specific amortizable intangible assets.’ That is: Beyond $11 million in actual stuff—servers, Aeron chairs, etc—there’s almost [nothing] there.”
The site defined goodwill as what a company pays over and above what the other company’s physical assets are worth—that’s par for the course with Internet site purchases, since most of the value isn’t in physical buildings. Still, given that Bebo has exactly zero extra name recognition today—and that it didn’t have a whole lot to begin with in the U.S., even if it did overseas—one has to wonder what’s next for Bebo.
“The problem comes when the acquirer later has to go back and tell investors, via a writedown, that it paid way, way too much—as Time Warner itself famously had to do with AOL in 2003,” the report said. “And now that Time Warner has declared that it spent $846 million on something it can’t really define, that’s a fat target for Bebo skeptics.”