Deceived Value?
March 8, 2017

Remember the good old days when companies had to turn a profit before Wall Street would touch them?

Sometimes I wonder whether “The Wizard of Oz” should be made compulsory viewing for today’s media speculators.

For those of you who haven’t seen it [78 YEAR OLD SPOILER ALERT], the climax of the film comes when Dorothy’s dog, Toto pulls back a curtain to reveal the eponymous wizard is merely a normal, middle-aged man pretending to have magical powers. Cue widespread audience surprise.

But that was way back in 1939. We’d never fall for a con trick like that again, would we? Would we?

Allow me to fast forward to 2017. Snap, the parent company of Snapchat, announced last week that it valued itself at nearly $24bn. I’ll repeat that: $24bn – or roughly the combined worth of the eight most valuable NFL franchises.

Let’s not forget this is a company that lost $515m last year. And $373m the year before that. So not only can they make photographs disappear, they’re pretty nifty at making cash vanish too.

It’s also a media brand whose growth rate is already slowing, whose user base is youthful enough to eagerly jump ship when the next big thing comes along and whose competitors have both a broader appeal and the deeper pockets necessary to develop offerings that replicate and even improve on Snapchat’s. Their 160m users is also nearly 40m fewer than the 199m who flew with American Airlines last year but that’s another argument for another day.

Of course, all this comes just a few short weeks after Twitter (which lost nearly a third of its valuation in 2016) announced that it was cutting 9% of its workforce, closing its Vine video app…oh and it had lost $167m into the bargain. Does no-one learn anything from history?

And it’s not just a spurious financial value that people who should know better apply to online media brands, there’s also a lazy assumption that they are somehow “sexier”. Last year the Daily Mail Group’s ad revenue from its print brands was £58m (62%) higher than that of MailOnline, accounting for over three-fifths of its ad revenue. This is despite the fact that MailOnline has 15m daily unique browsers compared to the Mail’s 3.5m daily readers. Using some very back-of-the-envelope arithmetic this means a Daily Mail reader is worth £0.12 every day in ad revenue, compared to a MailOnline user who is only worth £0.017.

Let me suggest a reason for that: one is based on an ad model that works. The other isn’t. And yet which one gets media agencies and marketers excited?

Of course I can afford to watch all this with a wry smile. With a record 3.7 billion consumers flying last year, inflight is thriving! What’s more, with Ink adding new airlines to its portfolio, our print sales will beat even those of the Mail this year – why don’t you come find out why?

But back to Snap. My personal favourite evaluation of their offering is that they “expect to incur operating losses in the future, and may never achieve or maintain profitability”. And who arrived at this less than optimistic conclusion? Snap did, in its own filing.

I’m sure those shares will keep going up!

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