What a Quartz sale might look like, and why

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The Quartz welcome page. (Qz.com)
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Ken Doctor

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Is Quartz the next digital-news start-up to be bought?

In the continuing roll-up and old media investment in digital news start-ups, Atlantic Media’s Quartz may be next in line. According to a Financial Times report published late Thursday evening, Atlantic Media “has met with at least one interested party this month.”

Acquisition interest in Quartz would come as no surprise. Axel Springer’s acquisition of Business Insider (“What Axel Springer’s big buy of Business Insider means”) just three months ago valued that business news start-up at about $400 million. Quartz offers a different profile for buyers, but it represents the next logical property in this market long controlled by massive legacy companies like Dow Jones, Thomson Reuters and Bloomberg. Further, Nikkei’s purchase of the Financial Times in July for $1.3 billion signaled a consolidation in business news properties.

If Quartz is indeed in play, who might be a logical buyer and how might it be valued? That depends on the kind of value a buyer thinks it can wring out of Quartz’s quirky business-news product and apart-from-the-pack business model. The site may be at a turning point, needing to get bigger to compete more effectively. As with its brethren, its audience goal is as much about regular engagement as it is overall audience growth.

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“We want to turn more and more people into habitual readers,” Jay Lauf, Quartz’s co-president and business head, told me Thursday.

Atlantic Media launched the site in September, 2012, three and a half years after Business Insider. At its birth, it broke ahead of the market, eschewing smaller display ads and becoming one of the earliest national sites to fully embrace native advertising and content marketing.

In addition, its smartphone presentation took a contrarian turn, born to benefit from sideways social and search traffic. (That strategy, in fact, just got a revision this week, as Quartz unveiled a new more traditional home page for its mobile and desktop products. We describe that change in thinking in our companion article, What Are They Thinking: “Quartz lays out a new home page welcome mat”)

Editorially, it has differed as well. Editor-in-chief (and now Quartz co-president) Kevin Delaney embraced a new way of covering business news. Instead of adapting the traditional business categories of his alma mater, The Wall Street Journal, he opted for “obsessions,” news topics of the moment and engaging heavier, future-embracing themes, like fintech, “energy shocks,” “the internet of everything,” and “the next billion” (“Quartz’s obsessive explainer model”).

The result has been impressive. Quartz counted 15 million global unique visitors, according to Comscore. About nine million of those are in the U.S. That 60–40 U.S.–global split has lasted, even as Quartz launched two international sites in the last year and a half. It launched India in June, 2014 and went public with Quartz Africa in March, 2015.

Today, it employs a staff of 150, double its size of 15 months ago. Like Business Insider, Vox Media and Buzzfeed, it has invested heavily in growth, rather than in taking shorter-term profits.

Atlantic Media owner David Bradley’s determination to build longer-term businesses can be seen in Quartz’s progress and in its sister consumer (Atlantic Magazine, Atlantic.com) and business-to-business brands (Government Executive, Defense One and National Journal). Bradley has made significant course adjustments, including cuts, to National Journal, an older business, in July (“National Journal seizes the day”). He may well see this as a time to change course, and sell Quartz, as well.

What’s It Worth?

Valuations in digital news media have wandered all over the board in 2016. Those transactions have covered a wide territory from Verizon’s buy of AOL to Axel Springer’s acquisition of Business Insider, with hefty NBCU investments in both Buzzfeed and Vox Media. Nikkei’s surprising $1.3 billion bid for the Financial Times, a company with net profits of just $38 million in 2014, shocked many observers. Recently, the real value of Forbes, sold with some unusual seller financing to Whale Integrated Media, has been brought into question once again by Whale’s failure to make a scheduled payment.

Legacy media valuations find themselves complicated by ever-declining print ad revenues, and, thus, the difficulty of forecast sustainable profit even against great audience gains. Digital media valuations depend largely on a digital ad marketplace increasingly dominated by Google and Facebook, buffeted by ad blockers and beset by uncertain rate forecasting.

Perhaps most instructive to a Quartz valuation is Business Insider’s recent experience.

We can figure Business Insider’s current marketplace value at about $400 million. The site can count about 70 million unique visitors worldwide. That would amount to about $5.7 million for each million in audience.

Quartz now has built a global audience of about 15 million. At the same multiple of BI, that might amount to a value of $85 million.

Both sites similarly depend heavily on digital advertising. Advertising provides about 75% of Business Insider’s revenue, which will come in at $45-50 million this year. Quartz, too, drives most of its revenue from advertising, with its events business growing toward Atlantic Media’s overall average of a 20% events contribution to total revenue. Both sites are free and open, though Business Insider now — with Axel Springer’s push — is moving toward testing a paywall.

One difference is in the kind of advertising Quartz had emphasized. Vigorously pursuing native-displayed branded marketing from its inception, the site has lured about 140 top-drawer advertisers over its life, with a good retention rate over time. Advertisers like General Electric (World in Motion campaign, which won awards) may have spent about a million dollars sponsoring the company’s international launches.

Those advertisers — using native-presented “Bulletins,” larger “Engage” units and the new top-of the-home-page “Marquee” placement — generate fairly high cost-per-thousand rates. Accounts vary on how high, but likely between $30 and $70. Those rates would be greater than the BI average of $15-20.

What might drive that differential? Quartz’s early emphasis and investment in working with top brands to create native advertising offers part of the explanation. In addition, Quartz has sold itself as a site for “influentials.” Business Insider, too, sells a “ business” audience, but skews more mass-oriented — and its digital audience, more than four times Quartz’s, shows that.

But a buyer may be quite attracted by the premium pitch Quartz has attached to what is already an above-average topical ad category: business. So we might add a premium on top of that first-pass $85 million valuation, perhaps pushing a valuation into the range of $100 to $150 million.

Who Might Buy?

Of course, value – especially in these days of high-flying valuations, now newly tempered by the thinking that a top may have been reached in appraisals — is in the eye of the beholder. If Axel Springer “overpaid” for Business Insider, it did so in the belief that it was buying a new pillar of the future.

While it seems a stretch for Springer to add Quartz to its holdings, it’s not an impossibility, given its lower-than-BI price.

Among the other suitors we’d have to consider:

Bloomberg: Two and a half years ago, Bloomberg hired the leader who had grown Atlantic Media generally and greenlighted Quartz, Justin Smith. The Bloomberg Media CEO has rocked and rolled with the realities of the Bloomberg empire in that time, and he’s just hired Atlantic Media vet Scott Havens to be his global head of digital media. It’s hard to imagine a more congenial home for Quartz, given that lineage. The big question: Does Michael Bloomberg have the appetite for another consumer business? Then, the inevitable one for any big business news company buyer: keep Quartz separate or integrate it?

Nikkei: In buying the FT, it has picked up a formidable old media brand, and one that has mastered the digital transformation better than any other news company. Yet, it’s a very specialized brand, built on wringing high prices from a relatively small (by digital standards) group of readers. Might a Quartz buy provide a big free footprint in the market, and offer lots of new ways to mix and match content and business models?

Thomson Reuters and News Corp/Dow Jones: Both companies are still looking for their digital reinvention, with differing models. Either could look at Quartz as Nikkei–FT might, as a hedge on the future. News Corp, though, we hear isn’t yet in the hunt.

We could make arguments for a range of other players. Jeff Bezos’ Washington Post could see Quartz as good young extension into a business news marketplace that’s not currently a strength. Joe Ripp’s Time Inc., in seeking deep niches to exploit, could pair Quartz with Fortune, though that might create a Seussian animal of odd proportions. The New York Times might see Quartz as an opportunity for faster growth — a natural adjunct for its T Brand Studio success. The Guardian still sits atop a pile of cash, and could expend it, in its quest to be seen as a true citizen of the world, and not just a British transplant.

All these companies would have to take a hard look at Quartz’s financials today and answer the big question: Can this smart, well-promoted business scale substantially?

That’s if Quartz is really in play. The company has been approached before, without a deal being done. In this waning year of big digital investment, though, the allure of a deal, for both buyer and seller, may be irresistible.