New media valuations metrics

On September 22, the Norwegian media group Schibsted announced a transaction to make it the sole owner of the French free classifieds site The valuation for the deal? €400m ($540m). I must admit it : I fell from my chair(*). Not that I look down at Le Bon Coin, au contraire. In a previous December 2009 Monday Note (Learning from free Classifieds), I explained why news media should give a closer look to such sites. In my view, they could draw inspiration from five key components: a crystal-clear interface, deep concern for its users, a proprietary value proposition, software that keeps working, and a free model… with paid-options.

Still… Four hundred million euros! In last week’s deal, Schibsted bought back the 50% stake owned by Ouest-France, the French regional newspaper group. The deal nets €140m for the Breton group – now facing a €100m restructuring of its… paper-based classifieds. The deal involves an asset swap: Ouest-France gives up a 59% EBITDA business (Le Bon Coin), and increases its stake in the company Schibsted exits, Car & Boat Media, valued at €120m, a 29% margin business. Analysts I spoke to wonder: Is this really the best move for Ouest-France? Obviously, they’re selling off a jewel. And, no less obviously, they never fully grasped the free classifieds site’s potential.

Now, let’s consider two aspects of this deal: the context for media economics, and asset valuation.

Context. The €400m valuation for Le Bon Coin, a four-year-old business, is to be viewed against the backdrop of French media goings-on. To name but one example, Le Parisien, a powerful daily, is to be sold for around €120m (the family owners wanted €200m). Last year, it made about €240m in revenue and lost €6 m. Together, Le Parisien, and its national/regional edition, Aujourd’hui en France, have a combined circulation of 477,579 and a readership of 2.23m (that is an astonishing 4.7 readers per copy). Translated into an ARPU (Average revenue per User) equivalent, Le Parisien makes 496€ per buyer of the paper per year, and €106 per reader per year. Let’s keep those numbers in mind.

According to the Schibsted press release, Le Bon Coin is valued at 22 times 2009 revenue of €18m, and 11 times the 2010 expected revenue of €36m.

On the one hand, we have a great but money-losing news media brand, Le Parisien, likely to be sold for 0.5 or 0.6 times its revenue. And, on the other, a classifieds website, Le Bon Coin, valued 11 times its revenue.

Isn’t there an imbalance here? An excess of sorts?

Asset performance provides parts of the answer: strings of losses for the newspaper (although clearly getting better) against a whopping 59% EBITDA for the classifieds sites and its ultralight production structure (20 people).

But the real answer is elsewhere: expected growth.

Valuation. Let’s go back to the ARPU metric. In August, according to Nielsen, Le Bon Coin had 11,4m unique visitors. Let’s assume – OK, I know the limits – we can count monthly uniques as regular users on an annual basis. This translates into a yearly 3.2€ ARPU. That’s thirty-three times less than the ARPU for the venerable (and quite good) Le Parisien.

How come?

Needless to say, this is not the way media analysts and investment bankers see the future. To them, beyond today’s hefty margins, size, reach, global approach, agility combining to make the future value of a skyrocketing asset.

Le Bon Coin is an adaptation of, a Swedish concept. The idea of free classifieds goes back to 1996 – the internet’s early days. In 2003, the Swedish newspaper Aftonbladet acquired Blocket which, since 2008, is part of Schibsted Classified Media. Blocket has been rolled out in 15 countries, including some outside Europe: The Philippines, Malaysia or Chile. Over the years, what started as a simplistic concept (free classifieds surrounded by ads) has been refined to include more and more paid-for services. Those paid-for components are progressively deployed as long as the basic service keeps gaining ground in its market. In France, where Le Bon Coin is the country largest classified site, paid-services (that are mostly designed to increase the performances of the free basic classifieds) account for 40% of the revenue. As in Sweden the service is no longer completely free.

Free” offers unparalleled power to grab a market. But once it’s time to shoot for real performance, a subtle injection of paid-for is mandatory. By the way, speaking of ARPU, the real estate paid-for site stands now at the center of a bidding war involving between its lead investor, Bernard Arnault’s LVMH, and the Axel Springer group. With an audience three times smaller than Le Bon Coin’s, but with big tickets items (houses, apartments) that people willingly pay to advertise, yields a ARPU of about €30 per user per year.

Another way to look at Le Bon Coin’s future is to extrapolate from the Swedish Blocket. The latter operates in a market, now fully covered, six times smaller than France. Based on Schibsted’s latest quarterly earnings, Blocket is to make about €72m in revenue for 2010, yielding a 61% margin. As a result,’s ARPU is €20 per year. That’s six times Le Bon Coin’s ARPU.

You see where I’m going: applied to the French market, within a few years, Le Bon Coin could see a yearly revenue of €200-220m. This makes the price paid by Schibsted look like a bargain.

Of course, this little simulation must be nuanced. First, Swedes are heavy consumers (after all, they invented Ikea…) and their turnover for stuff to sell is record high. In 2007, the total amount of articles going through Blocket weighed an astounding 5.5% of the entire Swedish GNP – a very unlikely scenario in France. Because of its market  penetration and frenetic activity, Blocket has been able to become entirely paid-for.

What does this mean for news producing media companies? In the future, chances are they will fall in two categories. First, the ones with high-margin, high-growth, large market-share businesses such as classifieds (either by creation or acquisition). These companies are likely to thrive, they’ll maintain the P&L of their news brands (combinations of offline and online products) just above the water line. The other category will keep struggling, fighting through the inexorable print readership erosion and its financially weak replacement by online activities.

Better think quickly outside the ”news” box — in order to save it.

* Disclosure: I worked for Schibsted International between September 2007 and December 2009. The simulations above are based on publicly available data. I simply tested them with some experts in media economics to make sure I was not completely off-track. –

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