Buckets of cash for Photobucket?

The blogosphere and the mainstream press are abuzz with speculation about the expected sale of Denver-based photo-sharing startup Photobucket Inc., and how much the fast-growing company may be worth.


Michael Arrington’s TechCrunch blog reports that Photobucket has hired investment bank Lehman Brothers to explore a possible sale of the company, which he says could be worth $400 million or more. Pretty amazing for a company with less than $10 million in sales last year.

Arrington hasn’t disclosed the source of his revenue data and projections for the company, which leads some to suspect the bankers may have leaked the data to help prime the market for a sale. His data, which includes no profit/loss information, indicates that Photobucket’s sales climbed from $4.4 million in 2005 to $9.3 million in 2006, and should reach $32 million this year. About 74% of Q4 2006 sales reportedly came from advertising.

Commentators at ValleyWag, HipMojo and the Daily Deal’s blog doubt that Photobucket can sell for as much as $400 million. Blogger Simon Brocklehurst, on the other hand, sees potential for an even higher price. “If pushed into it by a bidding war, I’d say that someone might be prepared to pay north of $600M – maybe even up to a $1B,” he writes.

So exactly who and what is Photobucket?

The company — which has its technology, development and operations functions in Denver and a business and sales office in Palo Alto, Calif. — basically allows people to store a limited number of photos and videos online for free, or larger amounts for $25 yearly. The stored images can then be linked to from anywhere on the Internet, and are especially popular with users of social media websites such as MySpace and Facebook.

Photobucket’s website currently reports 39 million registered users (it’s reportedly aiming for 60 million by year-end), 17.6 million unique site visitors per month and 7 million images uploaded daily.

In an effusive article last week, Fortune senior editor David Kirkpatrick called Photobucket “the most important site on the Internet that hardly anybody understands.” Critics worry the company could be hurt if MySpace and Facebook were to stop accepting its links. But Kirkpatrick sees that as an improbable prospect, which would likely provoke a “user revolt.”

Co-founders Alex Welch and Darren Crystal were software engineers at Denver’s Level 3 Communications, Inc. before starting Photobucket in 2003. CEO Welch, 30, earned a business administration degree from Colorado State University. Chief technical officer Crystal studied electrical engineering at the University of Texas and was a network engineer for computer maker Dell Inc. before joining Level 3.

The two used savings, credit cards and money borrowed from Welch’s parents to start the company in Crystal’s basement. Welch writes in a recent article for the eventuring website of the Ewing Marion Kauffman Foundation that they got early financing from a neighbor’s friend at Guaranty Bank in Longmont, after venture capitalists turned them down. Later venture funding eventually came from New York’s Insight Venture Partners and MenloPark, Calif.-based Trinity Ventures

Red Herring magazine reported recently that Welch has a previous connection with photography. He used to work for a Colorado rafting company, taking pictures as boats floated by. Today his company operates the world’s largest photo-sharing site, which as of February employed about 60 people, including 45 in downtown Denver.


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