Back in the day I bought a lot of what turned out to be garbage dot-com stocks. One of them is Quepasa, which runs a web business at – drum roll – quepasa.com. I still hold on to my shares, unwilling to pay a trading commission that is almost as much as the value of the stock.
For my currently-worth-$37 of Quepasa, I get the pleasure of an annual proxy statement, which I peruse for signs that I might recover something – anything – on my NEGATIVE 98.4% investment return. This year’s proxy delivered some interesting data I’d like to share with the social media gurus out there.
First the background: Quepasa.com was originally a portal for the Latino community. Unable to maintain a user base big enough to generate enough advertising revenue to cover content development costs, in 2008 it transformed to a Hispanic social network.
It took a while to get traction, but in 2009 quepasa.com found the right hooks to draw in tons of users. Through games, contests, and a viral flirting “app” (for real), quepasa.com’s membership and unique visitor counts quadrupled. So far, so bueno.
Now, let’s go where social media types don’t deign to go – the financial statement. In 2009, Quepasa took that quadrupling of members and converted it to a TEN-FOLD increase in ad revenues. So far, very bueno.
Smart marketers know, however, ROI gets calculated at the operating-profit level, not revenue. Quepasa serves as a great case study to illustrate why.
The marketing manager might rejoice that Quepasa’s revenues went from $56,000 to $536,000 in one year. But the CFO won’t, because the costs per $ of revenue, while dropping, still stand at an insane $20.
Quepasa lost nearly $10 million on its $536,000 of revenues last year. How to get a positive ROI on this social network?
What if it quadrupled its audience again in 2010? Let’s be crazy generous and say that would increase revenues ten-fold once again. We’d finish the year with a loss of $5 million.
To just breakeven, quepasa.com would need eight times its current number of members. That would require 60 million online Hispanics. There are currently around 25 million Hispanics online in the U.S. Even if we added in users from other countries, we’d need near-100% penetration. You see where this is going.
My ROI analysis means, of course, I should sell my $37 worth of Quepasa, regardless of the trading commission.
Little wonder that Facebook is working overtime to hone its business model, the biggest social media ROI riddle of all.