Boy, if I didn’t grab your attention with that headline, not sure I ever can.
My question, in fact, is: is there a need for a gay-oriented media company?
A couple of years, for no other reason than being bullish on online advertising and recognizing that the gay/lesbian market was probably inderserved, I bought a few hundred shares in PlanetOut.com, “the leading global media and entertainment company exclusively serving the lesbian, gay, bisexual and transgender (LGBT) community.” The company has over the years acquired digital and offline assets and diversified quite a bit, but retains its focus on the LGBT market, according to its corporate website:
PlanetOut’s digital media brands include Gay.com, PlanetOut.com, OUT&ABOUT Travel, Advocate.com, Out.com, OutTraveler.com and HIVPlusMag.com, as well as localized versions of the Gay.com site in English, French, German, Italian, Portuguese and Spanish. PlanetOut print media brands include The Advocate, Out, The Out Traveler and HIVPlus, as well as SpecPub, Inc. titles. Transaction services brands include e-commerce Web sites Kleptomaniac.com and BuyGay.com, travel and events marketer RSVP, book publisher Alyson Publications, and direct marketer Triangle Marketing Services, among others.PlanetOut, based in San Francisco with additional offices in New York, Los Angeles, Minneapolis, London and Buenos Aires, offers Global 1000 and local advertisers as well as its own properties access to what it believes to be the most extensive multi-channel, multi-platform network of gay and lesbian people in the world.
The company was worth $200M or so when I got in, and iVillage had just fetched $600M from NBC while IGN had sold for $650M to News Corp., to me the leader in the LGBT should be in the same ballpark. Obviously, I was wrong. Maybe, the company just dropped the ball.
I presumed that anyone operating in online advertising - with a position of leadership in their sector - should see a rise in revenues and an appreciation in market value. After a couple of very weak quarters, the stock slid to $8 and with no end in sight, I cut my losses and got out of the stock.
Today it’s trading at less than $2 per share; the stock fell 30% after its most recent woeful quarter, and today is down another 5%. The market value of the company with $69M in revenues in 2006 is a paltry $28M, and according to Yahoo! Finance, it boasts $11M of cash and $19M in debt, for an enterprise value of $38M. Of course, it lost $5M in 2006 and losses increased in Q1 2007.
According to its most recent press release after releasing Q1 2007 figures:
“We are taking some major steps to generate the healthy revenue growth and solid earnings performance that we believe this company is capable of producing,” said Karen Magee, chief executive officer, PlanetOut Inc. “To complete that work and regain the confidence of the market will take time.
Now what’s really interesting is that the company acquired a lot of magazines, and in turn, revenue by way of that deal.
Initially, the company stood out because it was one of the few new media companies that generated more revenue via e-commerce, transactions than online advertising. Despite the stigma attached to advertising to gays (not that there is anything wrong with being gay, of course, but it’s a fact that many companies unfairly don’t want to go there because of the repercussions of a vocal minority), I was convinced that any team can execute a business plan, maintain their e-commerce revenues, leverage their print advertiser relationships and boost online and offline ad sales.
Yet, the opposite is happening, the company’s costs are as high as ever and the revenues are stalling and even falling in some units; yet online advertising is soaring and advertising to gays is probably more acceptable than ever (again, if my wording is inappropriate, I do apologize, I’m commenting on others’ bias, prejudice and fear).
First-Quarter Financial Results
Revenue — Total revenue for the first quarter of 2007 was $16.8 million, down 5 percent compared to $17.6 million for the same period one year ago.
Advertising services revenue for the first quarter of 2007 was $5.3 million, equal to the $5.3 million for the first quarter of 2006.
Subscription services revenue for the first quarter of 2007 was $5.6 million, [down from] $6.3 million for the first quarter of 2006.
Transaction services revenue for the first quarter of 2007 was $5.8 million, down from $6.0 million for the same quarter a year ago.
The company’s market cap is now at $28M, and I wonder, does media need to be gay?
I mean, companies like BET, BlackPlanet.com etc. have built fantastic franchises by targeting to a race-based demographic. Indeed, I can see how music, fashion and many lifestyle interests need to be fine-tuned for a Black audience, even though many other categories of information need not be. Of course, it could be argued, that even things like health and travel need to be tailored, given racial dispositions and points of interests respectively.
But, again, does media need to be gay? Sure, employment, health, dating and travel need to be tailored to a gay audience to some extent, but does that mean that a gay audience will really flock to a site because of it.
Before you think I’m talking out of my derriere, you should know that my old job was being spokesperson and VP of ad sales for one of the largest men’s magazine where our gay readership was as low as 10% and as high as 33%. In fact, it could have been more, in some sections like Fashion. We consistely got inquiries about why we didn’t publish gay-oriented content. I thought it was odd, but I did understand the needs of a gay readership in the aforemention areas being different.
In fact, as I write this post, I start to think that the need for a gay-oriented media company is greater than ever, and maybe, despite their noblest attempt, the problem lies with the business plan or the management team in place.
Apparently, I am not alone.
“The tremendous promise represented by our businesses and the market, we believe, is as solid as ever,” Magee said. “But without question, our business model is in transition. We need to identify the areas with the most significant growth prospects for us, be clear about our objectives, and streamline the rest of our business to enable us to focus our resources and talent on those opportunities which we believe will return the most value to our shareholders.”
At a time when online media businesses are scorching, demand for audiences are great and interactive advertising revenue is increasing, is LGBT wasting a golden opportunity to do built a valuable franchise?
Also, at a time when even successful new media companies like 24/7 Realmedia are contemplating strategic options, should LGBT remain independent or should it consider selling?
There are many options, including a private acquisition that can maybe cut costs and boost ad sales. Of course, in terms of a sale, there are many suitors who could use the $69M in sales, could cut costs and increase sales quite a bit.
A Breakdown of Revenue and Costs by Segment is Revealing
Naturally for a company that generates $3.4M out of $5.3M in advertising revenue from publications vs. online, you have to be careful about kind of P/E multiple you project it, especially when there are no “earnings” to speak of. In that case, the P/S is very low, in line with print and not online media companies.
Furthermore, you see that a major drain on funds is a “travel and events” unit. All right, why not get rid of that then? Is it strategic? Does it serve shareholders? I’d say it does not, even though travel is a strategic part of serving the LGBT market, but you get my point…
But who would buy?
You can think of major media companies like CBS, Viacom, NBC Universal, News Corp. (don’t laugh, Mr. Murdoch is after the almighty buck more than anything else, though we don’t see this one happening) and Time Warner seem like natural fits. LGBT has the audience, after all, it just needs a fine-tuning.
In fact, in light of LGBT’s acquisition of a suite of magazines, would it not be a clever way for an old media magazine company to acquire it, generate savings with its own magazine operations, and then leverage LGBT’s online audience to funnel traffic to its magazines’ websites. Think about it, if you look at it this way, a gay reader would also (if they don’t already) read magazines and probably enjoy those magazines’ websites, no?
In that sense, LGBT is an attractive option for new and old media companies who could gain a foothold in the LGBT market and market their “straight” titles to a readership with high disposable incomes and what not. All of a sudden, the options expand to include players like Hearst, Meredith, Conde Nast, etc.
At a market cap of $28M, would you buy the company that is in a leadership position in its space?
I’m going to give it some thought this weekend. But a Venture Capitalist once said that he never looks at the business plan or financials. He simply looks at the quality of the team. According to him, a good team can fix a bad business plan. I do not know any one of the management team members, nor have I seen the business plan, but I do see the financials.
Would I invest in the company? I don’t know.
Disclaimer: please note that at the time of this writing I have absolutely no position in the stock but I might buy some shares in the weeks to come. Of course, if I do, I will disclose it on this site and add a mention to this post. If you do not see any mention on this post and happen to read it in the future, you can rightfully assume that I hold no shares in LGBT.
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WatchMojo NewsletterAs an ad sales guy, I served Vonage on a couple of ad deals and saw that the VOIP company was spending a lot of money. No really, I mean a lot.
At one point or another, the agency serving Vonage would step in and pull the plug on the campaign, because the money wasn’t even being wisely spent. To the agency’s credit, they would realize that before the end of the campaign.
That was sometime in 2005 or so. VOIP was to be huge, or so we were told, so there was a reason to be investing in the future.
In 2006 when Vonage was going public, initially I said: “maybe I should buy in, VOIP is a hot sector.” Of course, very few firms really make money post IPO. Google is one example, as is Goldman Sachs (who’s gone from $85 or so to $200+), and others exist as well, if you’re patient. My problem with IPOs is that most of the gains come to early shareholders and the IPO-day price gets a pop that is sometimes hard to maintain. Online ad company Fastclick went through this a few years ago, eventually selling out to Valueclick.
All to say, when I read up on Vonage in 2006, I realized that the company was bleeding money; as such, my desire to go long was soon turned to a desire to short the stock. But I did not, because shorting a stock requires a special sack of nuts. I actually tried it once, with Sandisk, a company I was both long and short at various times, without losing my shirt, and nuts.
Today, Vonage is a fraction of what it was on its IPO. I have no regrets for not shorting it, but I am certainly glad I did not buy it either.
If you’re anything like me and missed out on shorting Vonage, fear not, here’s a doozey of an IPO: that of Orbitz. Please, for the love of all things holy, do not take this as a recommendation to short or buy, it’s just an observation on the IPO market. I’m just saying I would not buy this stock in particular…
Anyway, if you want to see what is wrong with the IPO market - before it’s even fully come back to life - check out GigaOm’s Kevin Kelleher fantastic breakdown of the prospectus and other so-called confidential information here.
One of the better industry blogs, Valleywag, unearths a secret regarding one of the more clever blogs, the Fake Steve Jobs weblog.
Valleywag’s pick is:
Leander Kahney, managing editor of Wired.com, and author of the Cult of Mac site.
he has a new book coming out in early 2008: ‘Chairman Steve’s Little White Book’. For the book — subtitled ‘The Leadership Secrets of Steve Jobs’ — the anonymous blog, and the hoopla around the author’s identity, would be a great marketing device.
For more on what gave it away, at least to Valleywag, click here.
Paid Content is reporting that News Corp./NBC’s joint venture, dubbed NewSite is seeking to raise funds from private equity firms. The goal, Staci Kramer writes, is to sell 10% for $100M for a valuation of $1B.
If YouTube went for $1.65B and is the main M&A comparable.
What about Joost? Joost just raised $45M from 2 VCs, CBS and Viacom. But at what valuation?
That’s a great question, the two founders of Joost carry a lot of street cred, and they have used their own funds to ramp up the valuation. While Joost is a much-hyped project, a quick peak at the interface suggests that there might just be some substance beneath the flash, for sure. Disclaimer: WatchMojo.com is one of the content providers on Joost, one of the few online-only ones, in fact.
Anyway, much like Google gave 10% to Kleiner Perkins and Sequoia each for $25M total ($12.5M each), I do not see either Sequoia or Index Ventures taking less than 10%. I also don’t see CBS or Viacom taking anywhere near that. So say in all Joost gave up 25% (10+10+2.5+2.5) for $45M, for a pre-money valuation of $135M or post money valuation of $180M. Could that be? Maybe it was actually a pre-money valuation of $180M and a post money valuation of $225M, meaning that the $45M actually got the new investors 20% in all.
Who knows. I could be way off, but if that is somewhat right, what then would New Site’s valuation be?
Paid Content says 10% for $100M, for a valuation of $1B. Hmm. Maybe:
Keep in mind that Joost’s funding for $45 million is for a distribution service with a number of content deals but relying on a viral audience. NewCo says its distribution deals lock in access to 96-98 percent of U.S. internet users; it has its own content and non-equity, non-exclusive content deals so far with Comcast and CNET Networks.
Yeah, crazy times. But then at that valuation, who knows, maybe Joost actually got a far, far greater valuation and my assumption that each VC would demand at least 10% is way, way off. Come to think of it, no way would the Joost guys - who got $4B from eBay for Skype - value their baby so little.
Any thoughts?
PLAY
