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Digital Media Valuations Could Be Tough Sell

*Approximation. Source: Media reports, company disclosures and The Information reporting.

BuzzFeed and Vox are sitting on some outsized expectations from investors, based on The Information’s analysis of year-end revenue and valuations for venture-backed digital media companies.

But the multiples are high across the board, raising questions about all these companies’ exit options.

The Takeaway
Valuations remain high for digital media companies, but big revenue multiples bring equally big expectations that some well-known brands may struggle to meet.

Investors use revenue multiples, or the ratio of a company’s valuation divided by its revenue, to gauge their expectations of a company’s future value. The higher a company’s multiple, the more quickly they expect a company’s revenue to grow. But a company’s ability to deliver on its valuation could take a hit if growth doesn’t meet expectations.

Within the category of digital media companies there is a relatively wide discrepancy between the firms with larger revenue multiples and those on the lower end. A striking example here is between Refinery29 and Vox. Both pulled in a similar amount of revenue last year—about $120 million for Refinery29 and about $135 million for Vox. Yet Vox is commanding double its valuation. It’s a point that has led several investors and executives in the digital media industry to speculate that the publisher, which owns sites like SB Nation, The Verge and Recode, could struggle once it looks to exit.

To be sure, Vox has significantly larger traffic than Refinery29, which is likely an argument in favor of its higher valuation. In January, Vox pulled in 80 million unique visitors in the U.S., according to comScore; that compares with 30 million for Refinery29. Both companies were founded roughly at the same time—2002 for SB Nation, the predecessor to Vox Media, and 2005 for Refinery29.

To determine the current valuation for these companies, The Information referenced the 2016 revenue for each of these companies, based either on public statements by executives, media reports or data from people with knowledge of the financials. Some of the revenue figures are informed estimates rather than exact sales figures, though they indicate how the company is valued by investors.

For the smaller revenue companies that have been out raising, there seems to still be an appetite for digital media investors to meet higher valuations. Bustle, for example, recently announced a round that saw its valuation jump from around $140 million to a reported $200 million. Mic is also in the process of closing a round that should have it valued at a premium of its last reported mark of $100 million, according to sources familiar with the matter.

BuzzFeed, which has been internally discussing plans for a public offering next year, will encounter a new level of skepticism from public investors.

Mashable executives recently confirmed to The Information that they’re looking to raise capital again. Currently the company is valued around $250 million, according to sources, or six times its 2016 revenue of $42 million, which executives recently disclosed in an interview. But at Mashable’s current 6x revenue multiple, it’s near the high end of the digital media company valuations. Mashable’s CFO Mike Kriak recently told The Information that the company expects to keep growing revenue and break into profitability by late summer.

Although BuzzFeed is the highest-valued company in the group at $1.7 billion following its $200 million investment from Comcast last year, its valuation multiple is smaller than Vox. It was helped by a strong year in 2016 that saw its revenue push past $250 million, according to people familiar with the matter.

But the company, which has been internally discussing plans for a public offering next year, will encounter a new level of skepticism from public investors. The New York Times currently trades at 1.5 times its 2016 revenue. That figure includes both its print and digital revenue. On the purely digital side, The New York Times brought in $431 million ($223 million in subscriptions and $208 million in digital ads). That’s a 5.3x revenue multiple, more in line with the lower end of private digital media companies, but far less than what BuzzFeed and Vox might be expecting.

Tom Dotan joined the Information in 2014 covering the media, advertising and streaming video businesses. He is based in San Francisco and can be found on Twitter at @cityofthetown.