Inside the Math of Axel Springer’s Business Insider Acquisition

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For a site that was begging to be sold for $100 million as recently as two years ago, Business Insider did very well in achieving a price tag more than five times that amount.

Sold to German digital media mogul Axel Springer for $343 million in cash and a valuation of $442 million, the price tag went up real quick. If we count the shares already owned by Springer and Jeff Bezos, Business Insider’s total market cap is now $560 million. Back in January 2014, a potential deal with AOL for $100 million fell through.

As people stare slack-jawed at the final number, wondering how such a price is justified, it is important to keep in mind both Business Insider’s user base of 76 million and the context in which this is happening. It was only one short year ago that Facebook Inc. (NASDAQ: FB) closed a $19 billion to $22 billion dollar deal to acquire Whatsapp, which at that time had a user base of 600 million, and annual revenues of about $32 million.

Many are amazed that Springer would pay the reported figure of nine times revenues to acquire an as-of-yet unprofitable digital media platform, but nine times is nothing when considering the above. Put in those terms, Facebook bought Whatsapp for 600 times its revenues.

Here’s another: Yahoo! Inc. (NASDAQ: YHOO) bought Tumblr for $1.1 billion in May 2013 when Tumblr only had $13 million in revenue. That’s a capital value of 84 times revenue, more than nine times what Springer paid for Business Insider in per-revenue terms. These numbers sound fanciful, but then consider that Tumblr’s projected revenues for 2015 are now above $100 million, and the price tag Yahoo paid for it shrinks to 10 times revenue instead of 84.

Perhaps a different kind of calculation is in order here, that of per user instead of multiple of revenues. Business Insider is now valued at $560 million for 76 million users, or $7.40 per user. Facebook bought its Whatsapp users for a much higher $32 per user, and Yahoo bought Tumblr for about $10 per user. Now if we put these numbers in the context of how users are monetized in each company, then things make a lot more sense.

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