What is driving digital media valuations and how can publishers respond?

By John DeFriest

FTI Consulting

Washington, DC, USA

By Justin Eisenband

FTI Consulting

Washington, DC, USA


Capital markets — including equity investments, IPOs, and mergers and acquisitions (M&As) — have been very active for digital news publishers over the last 10+ years. Companies were able to raise funding, go public, and be acquired at high valuations (comparable to technology peers) on the backs of the pivot to digital consumption and advertising revenue growth.

However, after the peaks of 2020-2021, transaction activity has slowed significantly in the digital media industry.

Following the BuzzFeed IPO in the fourth quarter of 2021 and the Dotdash — Meredith, NYT-The Athletic, and Vox — and Group Nine acquisitions in the fourth quarter of 2021/first quarter of 2022, transaction activity was limited for the rest of 2022 and so far through 2023. The major exception was Cox Enterprises’ acquisition of Axios in August 2022, but the seller had been exploring sale options for over a year.

For the most part, IPOs and enterprise scale M&A was replaced with marginal portfolio pruning, single-title purchases by financial buyers (such as Forbes), and players that failed to go public exploring alternate strategies with limited success (such as Vice).

The changing economic environment post-COVID-19 has certainly contributed to some of the activity slowdown as central banks have raised interest rates significantly over the last 18 months. This makes financing transactions more expensive, and expectations of a potential recession create a “wait-and-see” mindset.

However, digital media valuations have seen much steeper declines than the broader stock market. This indicates there may be a more fundamental reset of valuations for the sector.

An index of seven publicly traded digital media companies has fallen approximately 40% since the beginning of 2022, while the S&P 500 is trading at roughly the same level despite some fluctuations month-to-month.

Valuation multiples have also dropped over the last year: The digital media index is down from 2.4x enterprise value to revenue in March 2022 to 1.8x in June 2023. Even privately held digital media companies have been forced to market at levels well below their prior valuations, including Vox (US$500 million in 2023 vs. US$1 billion in 2015) and Vice (US$350 million in 2023 vs. $5.7 billion in 2017).

For reference, digital media stock prices have seen similar declines as the newspapers index, which has more exposure to print revenue, legacy operations, and higher debt leverage ratios. Some digital publishers are trading at similar valuation multiples.

The valuation declines come at a time when digital advertising revenue growth has been challenged, and investors are increasingly emphasising profitability. After seeing hyper-growth in its early days, upcoming regulatory changes (specifically third-party cookie deprecation and other privacy-related changes) and market share losses to e-commerce platforms may slow digital advertising revenue for many publishers to flat or negligible growth in 2023.

In addition, digital media companies have historically struggled to drive profitability — with significant investments required in brand marketing and editorial content — which has been exacerbated amidst revenue slowdowns and inflationary pressures.

Combined with higher interest rates and overall tighter capital markets, investors have stopped placing a premium on digital ad-driven business with low margins, which has led to declining valuations and slowing transaction activity.

As digital media companies continue to generate lower valuations, expect to see a renewed focus on driving operational improvements and organic revenue and profitability growth. With less access to capital to help finance transactions — and investors holding onto assets in hopes of returning to peak valuations — M&A is likely to be limited as an avenue to fuel growth. Expect to see new business models tested, content distribution and revenue-share partnerships created, and next-gen content formats released to drive more engagement.

One of the higher reward avenues would be pivoting toward more consumer revenue (like subscriptions and transactions) to capitalise on stronger multiples compared to advertising. Ultimately, however, there may be an opportunity for prudent buyers to acquire strong assets at a discount, especially if there’s a playbook in place to re-accelerate revenue growth, diversify mix, or pair with other complementary portfolio assets.

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