Media Briefing: What Axios’ sale says about the valuation of digital media companies

On this week’s Media Briefing, senior media reporter Sara Guaglione seems to be at what Axios’s sale to Cox Enterprises alerts concerning the present funding marketplace for media firms.

Market verify

The important thing hits:

  • Business specialists say Axios’ value is excessive, however deserving, with a price not essentially reflective of the market.
  • An financial downturn could also be time for bigger firms to look to acquisitions
  • The promoting slowdown might spur extra media M&A offers.

On Monday, Cox Enterprises introduced it had agreed to purchase Axios in a money deal valuing the corporate at $525 million – roughly 5 occasions its projected 2022 income of over $100 million, according to The New York Times, which broke the information.

This follows different latest high-profile media acquisitions prior to now 12 months, and isn’t in contrast to the valuations of Politico, which bought for roughly 5 occasions its annual income at over $1 billion, and The Athletic, which bought for $550 million to The New York Occasions at greater than eight occasions its annual income. Business Dive bought to Informa PLC for across the similar value this 12 months, at 5 occasions its estimated annual income, too.

Digiday spoke to heads of M&A and funding advisory companies to see what the Axios sale says concerning the valuation of media firms throughout an financial downturn and a slowdown within the promoting market.

Worth is excessive, however deserving

The trade specialists Digiday spoke to stated that the over $500 million price ticket for a comparatively small, five-year-old firm is on the upper aspect – however unsurprising. It’s “slightly bit greater than your conventional publishing firm. However there have been a whole lot of the reason why,” stated Adam Birnbaum, govt director at advisory and funding agency GP Bullhound.

As to these the reason why, specialists pointed to Axios’ high quality content material, high-profile founders and journalists, native promoting enterprise, subscription merchandise and software program enterprise. However they particularly famous Axios’ profitability.

Cox can “throw in some huge cash right here and [think], ‘We’re gonna get a return on it. We all know this mannequin works.’ I feel Cox’s large problem goes to be to go away them alone,” Birnbaum stated.

Market worth and native markets

Daniel Kurnos, senior fairness analyst for web, broadcasting and media at funding banking agency The Benchmark Firm, known as Axios’s value a “wholesome” quantity paid by a non-public firm. “However I’m unsure the general public market would essentially be prepared to agree with that evaluation,” he stated in an e mail.

Within the public market, Sam Thompson, senior managing director at M&A advisory agency Progress Companions, is seeing valuations drop, which can be as a consequence of strains introduced on by surging rates of interest and the challenge of raising capital in an economic downturn.

However there’s a whole lot of money on the company and personal fairness aspect, he stated. “Corporations which might be displaying a lockstep development and hitting funds, hitting plans – they’re going to get rewarded for that,” Thompson stated.

However why would Cox pay greater than market worth? Particularly given Cox sold off most of its television and radio stations to Apollo Global Management simply three years in the past. Analysts imagine it has to do with the competitors and alternative Cox sees in Axios’ native editions, notably its launch of Axios Native final September in Atlanta, the place Cox – which owns The Atlanta Journal-Structure newspaper – relies. Axios has 24 native editions, and plans to achieve 30 U.S. cities by the top of this 12 months. 

“Cox was seeing them present up in these markets with an area version, and seeing that they’re taking eyeballs, that they’re gaining traction… That’s the place I feel the value was actually rooted in,” Thompson.

David Clinch, head of world partnerships at digital consulting agency Mather Economics, added: “There’s a worth assigned to this by Cox, which isn’t essentially the identical as the worth the market typically will assign to it … I feel it’s costly in response to the market, however an excellent funding.”

Why it’s time for bigger firms to look in direction of acquisitions

When it’s a troublesome time for smaller media firms to boost capital, bigger firms could discover it’s time to look to acquisitions to develop their very own companies, specialists stated.

“Environments like that is when conventional media firms construct up and purchase nice property as a result of it’s not as aggressive,” GP Bullhound’s Birnbaum stated. Smaller media firms wouldn’t have the ability to elevate this sort of cash on their very own on the similar valuations or by the SPAC market, he added. Axios has raised $55 million (a part of that’s from Cox, its most up-to-date lead investor). 

Birnbaum sees a “bifurcation” in media acquisition and merger exercise: firms that aren’t worthwhile are “not discovering cash as plentiful or as available, due to the character of what’s occurring in our capital elevating.” He pointed to Vice Media Group’s search for a buyer for instance. The opposite department is media firms “accessing audiences, that are [brand] protected,” particularly these “in demand” within the sports activities, way of life and residential classes.

“Huge firms will use alternatives like this the place there’s slightly little bit of disruption within the capital fundraising markets to choose up property,” he stated.

The influence of the advert slowdown

With the unpredictability and slowdown within the promoting market impacting the M&A panorama, media firms that depend on an promoting enterprise mannequin will have a look at slicing prices or getting purchased, stated Arvid Tchivzhel, managing director at Mather Economics’ digital consulting follow. People who have money available could look to purchase firms that may assist “climate the storm,” he added.

However for a bigger media firm “seeing a plateau in your present viewers or present base,” the query turns into methods to develop the enterprise throughout a “troublesome financial time,” he stated. The reply to that? “Bringing in a really profitable, worthwhile firm that has an enormous viewers and nice model recognition – and see if we are able to higher monetize them by our mixed property,” he added. (In an earnings name on Wednesday morning, Joey Levin, CEO of IAC, stated M&A is “very a lot one thing that we’ll be energetic in,” after the father or mother firm of Dotdash Meredith reported a second-quarter loss.)

Different media firms are watching the exercise rigorously. 

“Some folks have been musing aloud about who might be patrons for media anymore, considering that the world had shrunk,” stated Janice Min, CEO and editor-in-chief of leisure information writer Ankler Media, which raised $1.5 million in a June funding spherical. Axios’ sale “could be a fully new profit if we have been fundraising now,” stated Min. “Anytime that there’s a market demonstrated for media, it’s an ideal day for different media.” — Sara Guaglione

What we’ve heard

“There are a whole lot of similarities to spring, early summer time 2020. It’s not the [same level of] severity from a social standpoint, not to mention an financial standpoint. However some traits are comparable by way of brief planning cycles.”

Vox Media chief income officer Ryan Pauley on the most recent Digiday Podcast episode

Ankler Media could be very a lot a publication writer, however the leisure information outlet is increasing past the email-based type. 

Having raised $1.5 million in funding in June, the worthwhile four-person firm has employed a chief income officer, launched a newsletter that effectively doubles as an intellectual property database for film and TV producers, added to its podcast portfolio and is eyeing a transfer into the occasions enterprise, in response to Ankler Media CEO and editor-in-chief Janice Min. — Tim Peterson

This dialog has been edited and condensed.

Bringing on a CRO would appear to point that you simply’re going to be rising Ankler’s present subscription and promoting income sources in new methods or doubtlessly even including new income sources. What’s the plan?

We intend to supercharge our income development. We have now an viewers of now greater than 25,000 individuals who we imagine are indisputably essentially the most influential folks in media and leisure. We imagine that viewers has an enormous quantity of worth. And so that you’ll see within the coming months, occasions, screenings but in addition a diversification of sponsors already as a platform. Amazon was our launch sponsor after we began in January. We now have sponsorships from Apple, NBCUniversal, Hulu, different large companions, and we imagine that, with streaming and the tech-entertainment hybrid occurring, we are able to develop the circle of who comes onto the platform.

Ankler Media now has a portfolio of newsletters and podcasts. Do you propose to maneuver into every other types of media this 12 months?

I imagine we’ll transfer into occasions this 12 months. The assorted permutations of COVID put some issues in query, however I feel the urge for food for dwell occasions is robust and it’s actual and we intend to go additional into that. 

A few of what we’re doing, as a result of we’re very small and we’ve a restricted elevate, is seeking to see the place we are able to finest match expertise with an viewers. The defining narrative of leisure over the previous few years has been streaming, and it’s very properly lined by a whole lot of completely different locations at this level. I feel, like with [IP newsletter] the Optionist, for us to acknowledge undercovered pockets of the trade will likely be of actual worth to that viewers. [The main Ankler newsletter] has just about captured the mindshare of the CEO and C-suite class and prime tier of leisure. We imagine that there are different markets that in all probability might be higher served as properly.

Having gone by a funding spherical, what’s your learn on the present funding marketplace for media firms? Given the general public market scrutiny round BuzzFeed, the cancelation of Forbes’ SPAC IPO and the broader financial headwinds like rising rates of interest and the potential for a recession, it looks like it’d be a tough time to boost cash as a media firm, however it looks like media firms could also be feeling some urgency to both elevate cash to climate the monetary storm or discover a purchaser.

Once we have been in Y Combinator, they flat-out instructed us, “There’s going to be an enormous chunk of enterprise [capital investors] that’s simply not going to be all in favour of you since you’re media.” However I can inform you after we have been fundraising — and ours was a reasonably straightforward elevate as a result of we accomplished it simply earlier than the very critical financial slide started — that there have been individuals who requested us about BuzzFeed, The Athletic. There are a whole lot of headlines round media that enterprise capital doesn’t love. However I wish to caveat that by saying they have been additionally deep within the throes of crypto on the time and that didn’t work out both. 

There’s this stuff that turn into the flavors of the month or the distastes of the month, and I might say there are particular issues that stood out to them additionally. Huge achievements and large wins the place they acquired type of sparkly-eyed, and that would come with the Politico sale to Axel Springer.

Numbers to know

$525 million: How a lot cash Cox Enterprises can pay to accumulate Axios.

3.1 million: Variety of digital-only subscriptions to The Wall Avenue Journal, on common, that have been energetic throughout the second quarter of 2022, up from 3.0 million in Q1.

$490 million: How a lot income Dotdash Meredith generated within the second quarter of 2022, down 18% 12 months over 12 months on a professional forma foundation.

$106.8 million: How a lot income BuzzFeed generated within the second quarter of 2022, up 20% 12 months over 12 months.

16%: Share share of U.S. journalists who’re members of a union.

$100 million: How a lot cash Additional time raised in its newest funding spherical.

What we’ve lined

Vox Media’s Ryan Pauley explains how increasing the CRO function past advert gross sales improves advert gross sales:

  • Pauley was the second visitor within the Digiday Podcast’s four-part restricted collection on CROs.
  • He stated now overseeing Vox Media’s varied income streams has helped him to be extra knowledgeable when speaking to model CMOs.

Hearken to the most recent Digiday Podcast right here.

Google’s third-party cookie delay is a flip to procrastinators:

  • Advert executives are utilizing Google’s newest postponement as an excuse to push again their post-cookie preparations.
  • The financial downturn is additional slowing their efforts.

Learn extra about Google’s cookie delay right here.

Publishers put money into extra crypto reporters:

  • Bloomberg, Forbes, Fortune, Gizmodo and Cash are rising their devoted blockchain and crypto groups.
  • The latest fluctuations and instability on this planet of cryptocurrencies has made this protection extra pressing.

Learn extra about publishers’ crypto reporters right here.

Grid hires 3 journalists to spice up political, information protection forward of midterms:

  • Because the web site went dwell in January, Grid’s editorial crew has grown by 30% to 32 reporters, editors and replica editors.
  • Grid had round 2 million distinctive guests in June.

Learn extra about Grid’s hires right here.

What we’re studying

Axios’ surprising new parent company:
Cox Enterprises has spent the previous decade discarding lots of the newspapers it owned in addition to its native TV stations, so the web supplier’s obvious path to exiting the media enterprise makes its acquisition of Axios a little bit of a shock, in response to Nieman Lab.

The New York Times’ ad expansion plan:
The information writer has employed an govt from Amazon, Mohit Lohia, to stretch its first-party data-based advert enterprise to its non-news merchandise, in response to Axios.

Media companies’ advertising outlooks:
Main publicly traded media firms, together with Gannett, Paramount, The New York Occasions and Warner Bros. Discovery, have seen advert income sluggish and count on its tempo to decelerate additional within the third quarter, in response to The Wall Avenue Journal.

Political publishers’ patron saints:
Tech giants like Alphabet and Meta have turn into main advertisers for Washington, D.C.-based, politics-skewing publishers like Axios, Politico and Punchbowl Information, in response to Vox.

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