Salesforce Filings Show Details of Buddy Media Acquisition
According to new filings submitted by Salesforce to the U.S. Securities and Exchange Commission, Buddy Media, the cloud-based social media marketing company, finished 2011 with $24.7 million in sales, and ran a net loss of $14.7 million. For the first six months of 2012, it clocked $18 million in sales, with a loss of $20.6 million. That puts it on a run rate to somewhere in the neighborhood of $36 million to $40 million.
That’s pretty much in line with the guidance that Salesforce CEO Marc Benioff gave on a conference call the day the deal was announced. That works out to a multiple of a little less than 19 times revenue.
It’s worth paying attention to because Salesforce has a recent history of paying high prices on its acquisitions. Examples include Heroku, for which it paid $212 million, and for which Salesforce took a lot of criticism for arguably overpaying; and Radian6, for which it paid $326 million for a cash-flow-positive company.
At the time of the acquisition, Buddy had $37 million in cash on the balance sheet. That figure was down by about $21 million from the end of 2011, when it had north of $58 million in cash. That works out to a burn rate of $3.5 million per month, or $42.5 million for the year.
But the deal — which is Salesforce’s largest yet, and for which it is said to have out-maneuvered Web giant Google — as with every acquisition, is about the future. Benioff said during Salesforce’s last earnings call that Buddy Media handles about 10 percent of the advertising that appears on Facebook, and obviously the aim is to increase that.
His big hope for Buddy Media, as he described it on a conference call, is to combine its capabilities with that of Radian6 and create what he calls a “marketing cloud” that would bring in about $1 billion in annual revenue. It seems, at first, a little nebulous, until you consider the relative sizes of the two main component of the “marketing cloud” business.
Remember that Radian6 was, at the time of its acquisition last year, doing about $50 million annually. Assuming that it has grown since then, when combined with Buddy’s run rate, the “marketing cloud” is already a $100 million business. Obviously, there’s a way to go, but given Salesforce’s steadily growing free cash flow to fund operations, you can see a reasonable path to getting there.