Opinion

Felix Salmon

Gawker’s numbers

By Felix Salmon
October 11, 2010

Ben McGrath’s long-awaited New Yorker profile of Nick Denton is out, and it has (unsourced) numbers:

Given the thin margins of online publishing, Denton’s cultural impact greatly exceeds his revenues, which are somewhere on the order of fifteen to twenty million dollars a year. His ownership stake in the company is around sixty to seventy per cent, and every so often he attempts to consolidate by buying back shares that he has given to current and former employees. The rate he offered earlier this year would have put the company’s value at only thirty million dollars, or a fraction of what most analysts have estimated. (“Owning Gawker stock is like having an undiversified portfolio,” one shareholder said, explaining the potential appeal of such a lowball offer.)

All of these numbers are lower than I would have expected. The Gawker Media Network gets 447 million pageviews per month, of which 320 million are in the U.S. Even if you assume that Denton has no ability to sell ads outside the U.S., then that means Denton is bringing in about $5 per thousand pageviews, on average, with two ads per page. And these aren’t boring old banner ads, either: Gawker Media has long done innovative things with site sponsorships, like the Intel buy at Gizmodo today.

That number, in turn, helps to put another part of the story in some perspective:

At the outset, he had assumed that, in order to be viable, each individual site would need to achieve a million monthly page views; that threshold, he believes, is now twenty million.

At $5 per thousand pageviews, a site getting 20 million pageviews per month would have revenue of $100,000 a month, or $1.2 million per year. What we’re seeing here is Denton’s evolution towards moguldom: at the outset, he would have been utterly delighted with a blog making seven-figure annual revenues. Today, by contrast, that’s the absolute minimum he’ll accept.

Part of the reason is that payrolls per blog have been expanding substantially: where Gawker started with a single staffer making $2,000 a month, Denton’s blogs now tend to have a good dozen or more people on their editorial masthead. McGrath doesn’t give any numbers for Gawker’s payroll, but it’s surely very high at this point.

Which maybe explains why Denton’s stake in Gawker Media is lower than I would have expected — if you have that many staffers, even giving them a tiny bit of equity tends to add up over time. That said, it’s worth remembering that founding editor Pete Rojas left Gizmodo to start Engadget precisely because Denton would not give him any equity in the company.

It’s worth pondering who owns the 30 percent-40 percent of Gawker Media that Denton doesn’t own. The bulk of it, I suspect, belongs to the three colleagues named on the Gawker Media masthead: sales director Chris Batty, ad-sales chief Gabriela Giacoman, and general in-charge-of-everything person Gaby Darbyshire. Beyond that, CTO Tom Plunkett surely has equity, as does Scott Kidder. I’m sure that Curbed’s Lockhart Steele is sitting on some as well, dating back to his tenure as editorial director in the days when Gawker Media’s monthly pageviews totaled less than 2 million, and then there’s Steele’s predecessor, Choire Sicha, as well, and possibly some of their successors in that stressful position.

In any case, I’m sure that Gawker Media is very closely held, which means that at least some of Gawker’s shareholders must own between 5 percent and 10 percent of the company. Even at Denton’s lowball $30 million valuation, his company is now big enough that it has created millionaire employees. (One thing missing from the McGrath profile is the way in which Denton was very good at hiring a small number of top-quality professionals early on; they don’t get much publicity, but they deserve a huge amount of the credit for Gawker Media’s success.)

I certainly wouldn’t advise that those employees sell. For one thing, standard valuations in the blog space tend to be around 6X revenues, which would make Gawker Media worth $100 million or so. But the really big money for minority shareholders comes if Denton ever allows in a minority strategic investor. Right now, in the tiny secondary market for Gawker shares, Denton is the only buyer. But if a deep-pocketed strategic investor comes along, that investor will happily buy up other shareholders’ stakes at valuations well north of $100 million.

Meanwhile, shareholders are at least getting some kind of dividend on their Gawker Media shares. So unless they’re really desperate for the cash, I doubt that Denton’s getting many takers at his $30 million valuation. Even if that means he’s offering a seven-figure sum to some of his shareholder-employees.

Comments
3 comments so far | RSS Comments RSS

Hey Felix, interesting stuff. Does seem a little bit lower than expected and it’s almost as if he has a ‘limit order’ just sitting there attempting to buy back shares from anyone willing to sell because he thinks his own enterprise is undervalued. (Or maybe he just wants more ownership period).

I was curious as to where you derived the blog valuations trading at 6x revenues from? In the past, I had seen 2-4x revenues but had never looked at metrics in-depth.

Jay
@marketfolly

Posted by marketfolly | Report as abusive
 

Hello Felix

Here is an extract from your post (http://reut.rs/8Bazhh) on my column in January this year in which I said online CPMs for many sites had fallen to about $4:

“I have no idea where Gapper’s getting his $4 CPM figure from, but it’s clearly much closer to being a minimum than an average . . . It’s also worth noting that Gapper has managed to confuse CPMs — the amount of money that an advertiser pays per 1,000 pageviews — with RPMs, or the amount of revenue that a publisher receives per 1,000 pageviews. There’s nearly always more than one ad unit per page, which means that RPMs are some multiple of CPMs.

“Gapper is systematically overestimating the upside of subscription revenues, while underestimating the magnitude of advertising revenues.”

As you say above, the McGrath-Gawker CPM figure comes out to $5 if you assume none of the international traffic can be monetised (if it can, the CPM figure would be lower – about $4, in fact).

Still think I’m wrong?

John

Posted by Gapper | Report as abusive
 

Not accurate. He is probably averaging an eCPM of $2 (average CPM including direct ads and non-paying house ads) and an RPM of $6-9 (RPM = value of ads combined. 3 ads per page at $2-3 each)

So 320 million US pageviews X RPM of $6 would be $1,920,000 per month. And I am estimating that is on the LOW end. He is likely selling Canadian, UK and Australian inventory as well (english speaking countries) and at higher CPM rates than U.S.

Posted by IanBell330 | Report as abusive
 

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