Inside the Math of Axel Springer’s Business Insider Acquisition

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Facebook’s annual revenue for 2015 looks to be around $15 billion. With 1.44 billion users, that’s a value of $10.42 a user. Using that number, Facebook only paid a three-times multiple over its average user value for the users it acquired from Whatsapp. Yahoo has about 1 billion users and will make about $5 billion in revenue this year, for a capital value of $5 per user. Yahoo bought Tumblr for twice that much per user, which doesn’t seem so outlandish anymore.

As for Springer and how much his users are worth, the Business Insider purchase increased his user base to 200 million. Taking into account Business Insider’s 76 million, that means he had about 124 million users beforehand and annual revenue of $3.4 billion (€3.03 billion), which is an average $27 per user. But Springer only paid $442 million total for Business Insider’s 76 million users, which is $5.80 per user.

If you’re the owner of a giant piece of capital like a digital media company, it’s not a question of the final price tag you pay for an acquisition. It’s a question of how valuable each user is to you once you “process” them through your capital; in other words, monetize them.

Seeds and fertilizer are both worth much more to a farmer than they are to anyone else because the farmer has the capital to monetize those assets. To other people, they’re mostly garbage. User bases are like seeds for digital media companies, each with different capital to monetize them. If a company thinks it knows roughly how much it can make off of each user, it will price its offer accordingly, and that is exactly what Springer has done.

If he can monetize Business Insider’s 76 million users at even half the value he gets from his current user base, he will have acquired Business Insider at a considerable discount, rather than a premium.

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