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

In this weeks Media Briefing, senior media reporter Sara Guaglione talks about what Axioss sale to Cox Enterprises signals concerning the current investment market for media companies.

Market check

The main element hits:

  • Skillfully developed say Axios price is high, but deserving, with a value definitely not reflective of the marketplace.
  • An economic depression might be a good time for larger companies to check to acquisitions
  • The advertising slowdown could spur more media M&A deals.

On Monday, Cox Enterprises announced it had decided to buy Axios in a cash deal valuing the business at $525 million roughly five times its projected 2022 revenue of over $100 million, based on the NY Times, which broke the news headlines.

This follows other recent high-profile media acquisitions previously year, and isn’t unlike the valuations of Politico, which sold for roughly five times its annual revenue at over $1 billion, and The Athletic, which sold for $550 million to THE BRAND NEW York Times at a lot more than eight times its annual revenue. Industry Dive sold to Informa PLC for about exactly the same price this season, at five times its estimated annual revenue, too.

Digiday spoke to heads of M&A and investment advisory firms to see what the Axios sale says concerning the valuation of media companies during an economic depression and a slowdown in the advertising market.

Price is high, but deserving

The experts Digiday spoke to said that the over $500 million price for a comparatively small, five-year-old company is on the bigger side but unsurprising. Its a bit more than your traditional publishing company. But there have been plenty of explanations why, said Adam Birnbaum, executive director at advisory and investment firm GP Bullhound.

Concerning those explanations why, experts pointed to Axios quality content, high-profile founders and journalists, native advertising business, subscription products and software business. However they especially noted Axios profitability.

Cox can throw in lots of money here and [think], Were gonna get yourself a return onto it. We realize this model works. I believe Coxs big challenge will likely be to leave them alone, Birnbaum said.

Market value and local markets

Daniel Kurnos, senior equity analyst for internet, broadcasting and media at investment banking firm The Benchmark Company, called Axioss price a wholesome amount paid by way of a private company. But Im uncertain the general public market would necessarily be ready to trust that assessment, he said within an email.

In the general public market, Sam Thompson, senior managing director at M&A advisory firm Progress Partners, is seeing valuations drop, which might be because of strains due to surging interest levels and the task of raising capital within an economic depression.

But theres lots of money on the organization and private equity side, he said. Companies which are showing a lockstep growth and hitting budget, hitting plans theyre likely to get rewarded for that, Thompson said.

But why would Cox pay a lot more than market value? Especially given Cox sold off the majority of its television and r / c to Apollo Global Management just 3 years ago. Analysts believe it is due to your competition and opportunity Cox sees in Axios local editions, particularly its launch of Axios Local last September in Atlanta, where Cox which owns The Atlanta Journal-Constitution newspaper is situated. Axios has 24 local editions, and plans to attain 30 U.S. cities by the finish of the year.

Cox was seeing them arrive in these markets with an area edition, and since theyre taking eyeballs, that theyre gaining traction Thats where I believe the price really was rooted in, Thompson.

David Clinch, head of global partnerships at digital consulting firm Mather Economics, added: There exists a value assigned to the by Cox, that is not necessarily exactly like the value the marketplace generally will assign to it I believe its expensive based on the market, but an excellent investment.

Why its a great time for larger companies to check towards acquisitions

When its a hard time for smaller media companies to improve capital, larger companies could find its a great time to check to acquisitions to cultivate their very own businesses, experts said.

Environments such as this is when traditional media companies build-up and purchase great assets because its much less competitive, GP Bullhounds Birnbaum said. Smaller media companies wouldn’t normally have the ability to raise this type of money by themselves at exactly the same valuations or through the SPAC market, he added. Axios has raised $55 million (section of that’s from Cox, its latest lead investor).

Birnbaum sees a bifurcation in media acquisition and merger activity: companies that aren’t profitable are not finding money as plentiful or as easily available, due to the nature of whats going on inside our capital raising. He pointed to Vice Media Groups visit a buyer for example. Another branch is media companies accessing audiences, which are [brand] safe, especially those popular in the sports, lifestyle and home categories.

Big companies use opportunities such as this where theres a small amount of disruption in the administrative centre fundraising markets to get assets, he said.

The impact of the ad slowdown

With the unpredictability and slowdown in the advertising market impacting the M&A landscape, media companies that depend on an advertising business design can look at cutting costs or getting bought, said Arvid Tchivzhel, managing director at Mather Economics digital consulting practice. People with cash readily available may turn to buy companies which will help weather the storm, he added.

But also for a more substantial media company seeing a plateau in your present audience or current base, the question becomes how exactly to grow the business enterprise throughout a difficult economic time, he said. The solution to that? Attracting an extremely successful, profitable company which has a huge audience and great brand recognition and see if we are able to better monetize them through our combined assets, he added. (Within an earnings ask Wednesday morning, Joey Levin, CEO of IAC, said M&A is very much indeed something that we are active in, following the parent company of Dotdash Meredith reported a second-quarter loss.)

Other media companies are watching the experience carefully.

Some individuals were musing aloud about who possibly be buyers for media anymore, convinced that the planet had shrunk, said Janice Min, CEO and editor-in-chief of entertainment news publisher Ankler Media, which raised $1.5 million in a June funding round. Axios sale will be a truly new benefit if we were fundraising now, said Min. Anytime that theres market demonstrated for media, its an excellent day for other media. Sara Guaglione

What weve heard

There are a great number of similarities to spring, early summer 2020. Its not the [same level of] severity from the social standpoint, aside from an economic standpoint. However, many trends are similar with regards to short planning cycles.

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

Ankler Media is very much indeed a newsletter publisher, however the entertainment news outlet is expanding beyond the email-based form.

Having raised $1.5 million in funding in June, the profitable four-person company has hired a chief revenue officer, launched a newsletter that effectively doubles being an intellectual property database for movie and TV producers, put into its podcast portfolio and is eyeing a transfer to the events business, in accordance with Ankler Media CEO and editor-in-chief Janice Min. Tim Peterson

This conversation has been edited and condensed.

Bringing on a CRO appears to be to point that youre likely to be growing Anklers existing subscription and advertising revenue sources in new ways or potentially even adding new revenue sources. Whats the program?

We plan to supercharge our revenue growth. We’ve an audience of now a lot more than 25,000 individuals who we believe are indisputably probably the most influential people in media and entertainment. We think that audience includes a large amount of value. Therefore youll see in the coming months, events, screenings but additionally a diversification of sponsors already as a platform. Amazon was our launch sponsor whenever we were only available in January. We’ve sponsorships from Apple, NBCUniversal, Hulu, other big partners, and we think that, with streaming and the tech-entertainment hybrid going on, we are able to grow the circle of who comes onto the platform.

Ankler Media now includes a portfolio of newsletters and podcasts. Can you plan to transfer to any other types of media this season?

I really believe we will transfer to events this season. The many permutations of COVID put some things involved, but I believe the appetite for live events is strong and its own real and we plan to go further into that.

A few of what were doing, because were really small and we’ve a restricted raise, is seeking to see where we are able to best match talent having an audience. The defining narrative of entertainment during the last couple of years has been streaming, and its own very well included in plenty of different places at this time. I think, as with [IP newsletter] the Optionist, for all of us to identify undercovered pockets of the will undoubtedly be of real value compared to that audience. [The main Ankler newsletter] has virtually captured the mindshare of the CEO and C-suite class and top tier of entertainment. We believe there are other markets that probably could possibly be better served aswell.

Having been through a funding round, whats your continue reading the existing investment market for media companies? Given the general public market scrutiny around BuzzFeed, the cancelation of Forbes SPAC IPO and the broader economicheadwinds like rising interest levels and the prospect of a recession, it looks like itd be considered a hard time and energy to raise money as a media company, nonetheless it appears like media companies could be feeling some urgency to either raise money to weather the financial storm or look for a buyer.

Whenever we were in Y Combinator, they flat-out told us, Theres likely to be considered a big chunk of venture [capital investors] that’s just not likely to be thinking about you because youre media. But I could tell you whenever we were fundraising and ours was a simple raise because we completed it right before the serious economic slide began that there have been individuals who asked us about BuzzFeed, The Athletic. There are a great number of headlines around media that capital raising will not love. But I’d like to caveat that by saying these were also deep in the throes of crypto at that time and that didnt workout either.

Theres these exact things that end up being the flavors of the month or the distastes of the month, and I’d say there are specific items that stood out in their mind also. Big achievements and big wins where they got type of sparkly-eyed, and that could are the Politico sale to Axel Springer.

Numbers to learn

$525 million: How much cash Cox Enterprises can pay to obtain Axios.

3.1 million: Amount of digital-only subscriptions to The Wall Street Journal, normally, which were active through the second quarter of 2022, up from 3.0 million in Q1.

$490 million: Just how much revenue Dotdash Meredith generated in the next quarter of 2022, down 18% year over year on an expert forma basis.

$106.8 million: Just how much revenue BuzzFeed generated in the next quarter of 2022, up 20% year over year.

16%: Percentage share of U.S. journalists that are members of a union.

$100 million: How much cash Overtime raised in its latest funding round.

What weve covered

Vox Medias Ryan Pauley explains how expanding the CRO role beyond ad sales improves ad sales:

  • Pauley was the next guest in the Digiday Podcasts four-part limited series on CROs.
  • He said now overseeing Vox Medias various revenue streams has helped him to become more informed when speaking with brand CMOs.

Pay attention to the most recent Digiday Podcasthere.

Googles third-party cookie delay is really a flip to procrastinators:

  • Ad executives are employing Googles latest postponement being an excuse to rebel their post-cookie preparations.
  • The economic depression is further slowing their efforts.

Read more about Googles cookie delayhere.

Publishers spend money on more crypto reporters:

  • Bloomberg, Forbes, Fortune, Gizmodo and Money are growing their dedicated blockchain and crypto teams.
  • The recent fluctuations and instability in the wonderful world of cryptocurrencies has made this coverage more urgent.

Read more about publishers crypto reportershere.

Grid hires 3 journalists to improve political, news coverage before midterms:

  • Because the site went reside in January, Grids editorial team is continuing to grow by 30% to 32 reporters, editors and copy editors.
  • Grid had around 2 million unique visitors in June.

Read more about Grids hireshere.

What were reading

Axios surprising new parent company:

Cox Enterprises has spent days gone by decade discarding most of the newspapers it owned along with its local TV stations, therefore the internet providers apparent way to exiting the media business makes its acquisition of Axios a shock, in accordance with Nieman Lab.

THE BRAND NEW York Times ad expansion plan:

The news headlines publisher has hired an executive from Amazon, Mohit Lohia, to stretch its first-party data-based ad business to its non-news products, in accordance with Axios.

Media companies advertising outlooks:

Major publicly traded media companies, including Gannett, Paramount, THE BRAND NEW York Times and Warner Bros. Discovery, have observed ad revenue slow and expect its pace to decelerate further in the 3rd quarter, based on the Wall Street Journal.

Political publishers patron saints:

Tech giants like Alphabet and Meta have grown to be major advertisers for Washington, D.C.-based, politics-skewing publishers like Axios, Politico and Punchbowl News, in accordance with Vox.

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