How Much is a Digital Media Company Worth? This is a question that many of us have been faced with, as many of these companies have raised millions to hundreds of millions in venture capital.
For publishers, their investors and potential buyers, the question is crucial, as illustrated by a series of recent covers, analyzes and “struggles”.
Even for small businesses with a handful of employees, fractions of a percentage change in an appraisal can mean hundreds of thousands or millions of dollars of difference in final pay. Still, coming up with a final dollar figure can be a painstaking effort that encompasses a range of factors that fluctuate depending on everything from cash flow to psychology.
The discussion has to start somewhere, however, and there are parameters. We’ve gleaned the ones below from research, experience, and interviews with over two dozen media buyers, publishers, sellers, and financiers. Surprisingly, there isn’t a single IPO of a large, digital-focused media company, so the sale is the only type of liquidity event that we can base our analysis on.
There have been rumors that Buzzfeed or Vox could go public, but until they are made public or acquired, their extremely high valuation numbers are largely theoretical. Read on to find out what we found.
Income
Many discussions about the valuation of a media company begin with a multiple of its income. Digital media companies tend to sell 2.5 to 5 times (2.5 to 5 times) the revenue in the past 12 months.
Buyers, not surprisingly, are motivated by the amount of money they think the business is going to make. In the future, the prices paid tend to fall between 3 and 7 times the expected income expected for the next 12 months.
It’s still quite wide. Should a media company with an expected annual revenue of $ 10 million sell for $ 30 million (3x revenue) or $ 70 million (7x)? There are a number of key factors that can push the price to either end.
Profitability and its proxy, EBITDA
As many of the most high-profile tech companies have shown, making money doesn’t necessarily mean making it.
Many buyers demand that their acquisition goals be profitable. They often have formulas for the multiple they will pay on that profit, usually operating profit expressed in terms of its proxy, EBITDA.
EBITDA, short for “earnings before interest, taxes, depreciation, and amortization,” measures how much money is left after “real” expenses – things like salaries and office rent – are paid but above all else. financial and tax trick that can make the report the income, that is, the bottom line, is quite different. Most digital media companies sell around 8 to 12 times EBITDA.
Sophisticated strategic buyers look much further. They want to know not only current EBITDA as a percentage of revenue, but also what they could do to improve it.
Can they reduce expenses by combining back end operations such as accounting or human resources? They might look to see what new benefits they can add through new sources of income.
“When we think of mergers and acquisitions, it’s less about what the business is today and more about what we’re going to be able to do with the business,” said Vivek Shah, CEO of Ziff Davis who oversaw several media acquisitions. “With revenue growth and improved margins, in 12 to 24 months, what will our workforce multiple be? We strive to achieve 5x EBITDA “as a percentage of sales”.
Growth
Buyers also focus on how fast a business grows. For media companies less than five years old, an increase in revenue of 30-50% per year is considered a reasonable benchmark.
But these young media companies also tend to invest their retained earnings in expansion, hiring more staff and adding services in order to increase revenue growth. Higher growth then means lower profitability, which can lead to intense discussions during the buying process and even foregoing certain types of potential buyers primarily seeking immediate financial returns.
“Equity-backed buyers want you to grow quickly, but they value you based on your profits,” said Scott Clavenna, CEO of Greentech Media, acquired last July for an undisclosed amount. “So you’re in a situation where you have to be growing fast and very profitable to get a good multiple from a PE-funded business. “
Income type
Certain varieties of income also tend to add value in acquisitions, starting from half a percentage point in the multiple:
- Subscriptions or memberships show that an audience is willing to pay. In addition, the money comes before the service is provided and thus helps finance future operations. (Financial professionals call this type of money “pre-income.”) Subscription income is also more predictable than advertising or affiliate marketing, both of which can fluctuate wildly depending on market conditions that are beyond the control of any company. “ARPU [average revenue per user per year] of a digital subscriber is 7 times higher than the average unpaid reader of the New York Times, ”wrote Frédéric Filoux in his Monday Note newsletter.
- Paid research income is attractive because it shows the business is capable of presenting and selling information. This research can then be used to create other media that attract even more revenue through additional purchases, advertising and, perhaps, events. This can generate press coverage and interest and empower brand perception.
- Events. Some media company buyers like income from events because it shows that the business community is motivated enough to physically go somewhere for the experience created by the media brand. Events prove that a list of company names represents real people. Events also tend to have a high profit margin, 50% or more.
- Data base. Media companies that know their consumers are worth more than those of similar size who don’t. Basic lists – names, email addresses and zip code – help. Additional data the publisher may have, such as behavioral and purchasing information, can add more value.
- Multiple streams of income are better than less, especially if they offset each other and work differently in different market conditions.
Advertising type
Endemic content-specific advertising is better than more generic ads. Advertising sold directly is generally worth more than revenue through ad networks or exchanges.
Public / Community
Readers of complex financial media will be worth more as media consumers than those with low disposable income. Employed C-level executives have a bonus. Being a must read for executives in a specific industry also helps. All of this certainly explains why Pitchbook, which publishes investment data and research, sold to Morningstar last June for a price of $ 255 million on 12-month revenue of $ 31.1 million, an unusually multiple raised.
Ultimately, an online media brand is worth “what anyone is willing to pay for it,” joked media reporter Peter Kafka, as observers marveled at the nearly 9 times the income. Business Insider is said to have obtained from German publisher Axel Springer when it sold for that price. equates to a valuation of $ 442 million.
The deal illustrates another factor that drives up the price of a media company: whether it has what the buyer wants at the time, such as entry into a new international market or particularly desirable expertise that they want. wish to acquire.
This essay was originally published on Medium and is reprinted here with permission from the authors. The authors of this essay are working on an upcoming white paper, “How to Get the Most Out of a Media Business: What Are the Valuation and Market Drivers?” “
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