It is possible to find in the financial results of Formula Vision Technologies, published this week, some figures about one of the great hopes of Israel’s dot.com era: Babylon.
Babylon is owned by Formula Vision Technologies (30%), the Fishman group (18%), and entrepreneur Amnon Ovadia (15%). It is to Babylon’s credit that is one of the few companies whose business strategy from the high-tech boom era is a proven success.
Babylon abjured the common business model of that era that failed to include revenue or sales, while hoping that cash could nevertheless dribble into shareholders’ pockets. In most cases, these companies have vanished into an electronic netherworld. Babylon’s story is otherwise.
Since it was founded in 1997, Babylon has distributed its product and recruited tens of millions of customers. Although the company failed to generate substantial revenue through mid-2001, due to the dot.com crash and an erroneous sales model, the company has apparently since gotten back on track.
Babylon’s product included hundreds of professional dictionaries in 55 languages, along with encyclopedias and data tables. Under the company’s new business model, Babylon focuses its sales in three key markets: the household market through its website (Babylon’s translation software is the number one downloaded program worldwide); the organization market; and what the company calls the vertical market, in which companies distribute Babylon’s product as part of their own business model.
Babylon posted a loss of NIS 10.6 million in 2001, compared with NIS 15 million in 2000. It is hard to present sales numbers for the year as a whole, because the company changed its sales model mid-year, and because it is a private company. However, Babylon CEO Alex Azulay says the company posted NIS 3 million in revenue in the fourth quarter, 30% more than in the preceding one.
Azulay says, “We expect at least NIS 21 million in revenue this year. I estimate we will reach the break-even point in the fourth quarter, and then move into the black. It should be borne in mind that we decided to increase our expenditures in order to continue our accelerated growth.
“In principle, and if we wanted to, we could already post an operating profit. We decided to expand our marketing network in the US and Europe, and make Babylon into a tool for general information, rather than just a translation tool.”
“Globes”: In the past, you talked about an IPO or large financing round. Is this still relevant?
Azulay: “The IPO market is rather tight now, so the subject is not on our agenda. I was appointed CEO only last year, and my main objective at the moment is to make Bablyon grow and earn profits. I'm certain that an IPO will happen when the time is ripe, but for now, we’re dealing with other things.”
What about a private placement?
“Last April we held a $2 million private placement, and I assume we’ll hold another one very soon in order to grow.”
How much cash do you have?
“We don't disclose that information, but I can tell you that we are not suffering from a cash shortage. The next financial round will not be in order to survive, but to grow.”
What about acquisition?
“Babylon is an exotic company, and we naturally talk with parties interested in buying it. There is no-one specific at the moment, and I think it would be better for us to focus on growth, rather than talking about a sale or issue. The company’s potential is obvious and great, and we are only now beginning to realize it.”
Published by Israel's Business Arena on 7 March 2002