Tuesday, February 8, 2011

The Huffington Post Sells Out

The big news on the internet is that AOL is buying the Huffington Post for $315 million. And $300 million of that is cash, not pretend internet money like you were thinking.

Some bloggers, such as Stacy McCain over the Other McCain, are eyeing the $315 million valuation as suspiciously high. AOL stock dropped 3.4% in trading today, a loss of $80 million in market value. That suggests the Huffington Post got no more than a 25% premium over its true value to AOL.

AOL stopped being hip 12 to 15 years ago, as internet users began moving from dial-up to broadband. Indeed, speculation is that most of AOL's profits today come from older users who are still paying the monthly AOL fee even if they are no longer using the service.

In some people's minds, the ill-fated AOL merger with Time Warner in January 2000 triggered the dotcom bust. At the height of the dotcom bubble, the stock market valued AOL at $163 billion. Now AOL has been spun off from Time Warner and has a market value of $2.34 billion.

Judged by traffic, it appears the Huffington Post would add about 37% to the traffic at AOL.com. The Huffington Post has 40,775 sites linking in, as compared to only 17,644 for AOL.com. AOL is paying $12.60 per unique visitor for 25 million unique visitors per month for a more engaged audience.

And they have similar demographics, as judged by Alexa.com:

"Huffingtonpost.com's audience tends to be Caucasian; it also appeals more to moderately educated, childless women earning over $60,000 who browse from work."
"Aol.com's users are disproportionately Caucasian, and they are disproportionately moderately educated, higher-income, childless women over the age of 45."
As a value play, acquiring The Huffington Post run by 60-year-old Arianna Huffington may prove to be a shrewd move for AOL. But how much value will be created? Arianna Huffington says she and AOL CEO Tim Armstrong have big plans:

"the blending will have a multiplier effect. Or, as Tim and I have been saying over the last couple of weeks: 1 + 1 = 11."
Can Arianna pump Tim's stock price up eleven-fold from $21 $231? I don't think so. That's a lot of air.

Note: At these prices you could buy Left Bank of the Charles for $7,000. That's a humbling amount. But if you want to make an offer ...

No comments: