Weekly (8/12)

Welcome to The Weekly, where our team shares a few thoughts to take you into the weekend. The August 12th weekly is brought to you by Jared Schepis, one of our investment writers.

Titan's Takeaway: Once championed for their disruption of traditional media, lucrative digital media exits- like Axios' sale- are an increasingly common phenomenon, speaking to a broader theme of bundling shaping the tech, media, and social media landscape.

The talking heads have fixated on long-winded lectures that cover interest rates and inflation - in an effort to explore a different narrative, we're switching to the world of digital media for today's Weekly.

Over the past decade, a host of digital media outlets have grown up from niche and quirky websites to lucrative media conglomerates. Politico was sold at an enterprise value of $1 billion in 2021. The sports outlet, The Athletic, fetched $550 million from the New York Times earlier this year. Just this week, Axios sold for $525 million.

The Athletic raised nearly $140 million in total fundraising, Axios $55 million, and the feminist and entertainment website, Refinery29, $120 million. To some extent, the growth of digital media companies is part and parcel of the larger venture and private equity boom of the past decade. Surely content is king, but do prospects for growth warrant such high valuations?

Perhaps digital media was the natural next destination for blue chip venture capital to pour their leftovers after years of spraying cash around Silicon Valley. It's somewhat surprising that digital media has become such a sponge for venture funding, considering that the media industry is becoming increasingly consolidated and competitive, going head to head with social media in the content wars. What's more, digital media is a historically tricky sector to monetize and scale. Regardless of these potential roadblocks to growth, investors were not deterred, and out grew an entirely new generation of outlets. 

But as quickly as these unconventional, alternative websites bloomed, they seem to be just as briskly exiting and selling to mainstream media. Once applauded for their disruption, digital media outlets appear to be more than happy partnering with more prominent news outlets and publications, securing a robust exit multiple for investors, and bundling their content with other larger enterprises. Axios, which rakes in roughly $100 million in revenue, was sold at five times multiplier, The Athletic at 8.5, and Politico at five times revenue. 

The daily newsletter, Morning Brew, is perhaps the biggest digital media success story. After raising just three-quarters of a million dollars, Insider bought the quirky finance newsletter for $75 million in 2020. That's a healthy return for an email newsletter started in the dorm room of two students at the University of Michigan. 

Not all outlets have been as lucky as Politico, The Athletic, and MorningBrew. In 2018, Mic, despite raising $60 million and driving $10 million in revenue, sold for $5 million. Mashable sold at an enterprise value of only $4 million higher than it raised in aggregate. 

Digital media outlets are all chasing the windfall HuffPost received in 2011 when it sold for 10.5x revenue. And unlike their well-funded tech peers who used to charge into IPOs, digital media websites seem much more motivated to sell early. 

Are these outlets selling too early? Or do they think they've plateaued in terms of growth and that partnering with a major media player is the only way to survive? Maybe that's why the more prominent, traditional outlets don't seem phased by their niche internet competitors. At the end of the day, they know they can just gobble them up. 

Whether conscious or not, this strategy is emblematic of a broader pattern emerging: the bundling of media, tech, and entertainment. As social media companies like TikTok continue to take market share from written and long-form content, these partnerships might be a strong move for digital and print media. As the media industry only continues to evolve and grow more competitive, this might be the right time to cash out.  

Three Things for the Week 

1) Stocks rally to bull market territory: The tech-heavy Nasdaq Composite is knocking on the door of a potential bull market, rising 20% from its most recent lows. The index had been in bear market territory for 108 days, the longest since December 2008. 

Titan's Takeaway: It's a bull market only by taxonomy, and the recent rise is likely nothing more than a bear market rally in a sustained downturn. It's important to note that a 20% loss from 100 is much larger than a 20% gain from 80. 

2) Inflation eases in July: The CPI print came in at 8.5% for July, down from June's 9.1% increase. This data suggests that inflation may have peaked and is now decelerating. While it's unlikely that one encouraging print will abruptly end the Fed's tightening policy, it may make them reconsider another 75 basis point increase. 

Titan's Takeaway: If inflation has hit its peak, the two questions now are how long prices stay elevated and how fast they decelerate. The Fed hopes today's inflation is an exception to the rule and that high prices abate quickly, avoiding years of slower growth and elevated prices. 

3) SoftBank gets crushed: The Japanese conglomerate lost a record $23 billion in Quarter two, as speculative start-ups issued significant write-downs and private markets started to feel the impacts of less liquidity in the markets. As a result, they sold their state in Uber to lock in profits and one-third of their stake in Alibaba for a $34 billion gain. 

Titan's Takeaway: Private markets have historically adjusted more slowly than public ones. SoftBank's quarterly loss emphasizes that private markets aren't exempt from overall economic tightening, and the arbitrage between the two is diminishing.