The siren call of digital media startups is hard to resist, even in a market as rocky as this one.
That was illustrated sharply on Monday by the premium price that Cox Enterprises, owner of the Atlanta Journal-Constitution, agreed to pay to buy the prominent startup Axios. The $525 million headline valuation that Cox is putting on the five-year-old Washington-based news startup represents roughly five times the revenue that Axios was targeting this year. That multiple is significantly higher than what publicly traded publishers are trading at.
For instance, shares of News Corp., which owns the Wall Street Journal, are trading at 1.3 times this year’s expected revenue, according to Bloomberg data. The New York Times Co. is at a little above two. Specialist publishers such as Ziff Davis and Future Plc are each trading closer to three. BuzzFeed, the laggard of the group, is at a little below one. On average, this group is at about two.
Sure, public market stocks often trade at a discount to private ones. And the multiple Cox is paying is in line with what Axel Springer paid for Axios rival Politico last year. Cox is actually paying a meaningfully lower multiple than the one the New York Times valued The Athletic at in that deal earlier this year. That implies Cox isn’t overpaying relative to other private-market digital media deals.
Except those were all done before the market selloff of the past few months. And given the numerous reports of a slowdown in the ad market, logic would suggest Cox should be receiving a discount on the pre-downturn valuations for digital media.
Moreover, after the pounding that investors have taken on BuzzFeed — valued at a peak of $1.7 billion in 2016, about four times its current enterprise value — you would think Cox would be wary.
To be fair, Axios is a much different business from BuzzFeed. Supporters point to the quality of Axios’s readership: educated, well informed and passionate, which is a hugely valuable audience for advertisers. It’s presumably younger than the average age of Wall Street Journal or New York Times readers, given that those are long-established brands.
And Axios is growing fast (or at least was): Revenue expanded 50% in 2021 compared with results in the previous year, according to what the company told investors. By comparison, News Corp.’s revenue grew 4% last year year, albeit off a revenue base that is many times the size.
Still, even before the ad market decelerated, Axios was projecting a markedly slower growth rate for this year. The $100 million expected revenue represents growth of only about 14% from last year. One reason for that slower growth, I hear, is that Axios management was more focused on getting some new businesses off the ground. Another is that a TV show that Axios did with HBO was not renewed, removing a chunk of revenue.
The best case is that this year is a speed bump and that Axios’s growth revs up next year. If that happens, what looks like a premium valuation may end up looking smart. Right now, though, the price feels pretty rich.
