How to value a blog?

Very good attempt from Douglas A. McIntyre at 24/7 Wall St to try to put a valuation number on the most used and famous blogs even if I get to a very different result. 

Here’s the list and their corresponding valuations:

1. Gawker Properties – $170m

2. Huffington Post – $90m

3. The Drudge Report  – $48m

4. Perez Hilton – $32m

5. Sugar Inc. – $27m

6. TechCrunch – $25m

7. MacRumors – $21m

8. SeekingAlpha – $11m

9. GigaOm – $9.5m

10. Politico – $8.7m

… the other 15 blogs are there.

The calculation is getting to strange results on some cases: Sugar at 27m seems like a bargain, especially when it’s based on the fact that the company has 70 employees. For me, part of these employees are actually working on the Coutorture blog network and, more than that, on Shopstyle which brings its own share of CPA / CPC revenues. Also, Gawker at 170m is probably much too high and that’s based on the fact that Doug takes 100% of the traffic (worldwide 23m UV) whereas only the US portion is monetizable (i.e. 14.4m UVs).

Let’s redo the exercise!

I’ve tried to redo the calculations on the Top 10 based on 24/7 info on employees and cost structures but using the US numbers on traffic (average of Quantcast / Compete / ComScore) with revised rates on remnants vs. premium advertising (closer to what we can see on the industry right now). The basic assumptions are:

  • Traffic: Only US traffic is monetizable. Most of the cases, Doug takes the World traffic. Even if in certain cases, you can monetize it through international remnant networks, it’s going to be the bottom of the barrel.
  • Premium rates can go from $4-5 to $15. I don’t believe in anything above right now, looking at the advertisers coyness. On top of that, you need to take into account that most blog templates includes up to 6 to 7 ads per pages, with maybe only  one or two of them above the fold (commanding higher CPMs). The ads below the fold, because of their very low CTR, are usually heavily discounted.
  • Remnant rates are lucky to be around $1 (that’s when fully optimized with a dozen+ of partners).
  • When blogs are using remnants partners, I’ll assume a premium sell-through and then most of the rest through remnants.
  • For the blogs that are growing quickly, I’ve also assumed a premium of 20% on the revenue since I’ve done all my calculations based on January figures. That’s limitative but that’s a sufficient for the exercise.
  • For the costs, I’ve kept Doug estimates since I don’t have any insights there. From time to time, I’ve just adjusted them based on revenues.

Variances

  • Traffic: I used an average between ComScore, Compete and Quantcast. Data are diverging from time to time pretty strongly between the sites but it’s better than nothing. As I was saying, I also only used the US portion of the traffic (24/7 used the worlwide traffic data). Pretty big variances here. Over the Top 10 sites, I came up -49.7% on the UV and -38.6% on the PV (the real driver for when we get to the calculation of the revenue). See below the detailled list and you can find here the Excel spreadsheet. 

Difference on traffic between 24/7 and me

  • Revenues: Obviously, because of the above, revenues vary dramatically, especially for the small sites. Combined revenues for the Top 10 sites get to $60m for me vs. $100m for 24/7 WallSt. That’s a big fallout. The key reason is that I’m very pessimistic on the ability of these sites to get high premium ad sell-through. On top of that, some of them are part of networks (Federated Media etc.), furthermore undermining the net revenue to them.
  • Margin: Well, as expected, this is where it gets ugly. 4 sites out of 10 are losing money (and I do think 24/7 was soft on their cost estimates for most sites), 2 of them are barely breakeven. 
  • Valuations: I’ve took a 2x multiple on revenues on all sites except when it was either a leader in its segment (HuffPo) or particularly influencial (TechCrunch) etc. On operating margins, most of the times I kept a 6 to 8x multiple.  When companies were losing money, I only kept the revenue multiple (which is nice…). 

So, total valuations for the Top 10 properties is at $159m from my end vs $442m for 24/7.  That doesn’t mean it will sell this low since between the intrinsic value of a company and its purchase price comes an infinity of variables (how much money was sunk by VC, how much these guys are expecting, what are the synergies to be expected, how badly does the purchaser wants the company etc.). 

You can find the full spreadsheet detailing the calculations here.

3 thoughts on “How to value a blog?

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