Back when AOL bought Bebo for $850 million, I was already speculating that the social network had slipped from its valuation high of $1.5 billion. Now it appears that the social network has lost users–down from 22 million a month to 14.6 million–and with it, it’s value to AOL.
What’s interesting is the predicament facing AOL. Due to some complex tax laws, it may actually make better financial sense for AOL to just shut Bebo down.
[Rules] let Aol write off the full purchase price of Bebo if they declare it worthless and abandon the asset. With Aol’s effective tax rate of around 45%, that’s $380 million and change in their pocket in taxes that they’d be able to avoid.
Selling Bebo would only help AOL if it had long-term capital gains it could apply any loss against–which it doesn’t appear to have.
Crazy huh? You buy something for $850 million, but can’t even hold a fire sale. It’s actually better to just set it on fire and let it burn!