Forbes’ financial results show that its asking price of $400M is somewhat, er… aggressive

Gigaom

Forbes, the legendary financial magazine that has spent the past few years aggressively exploring new online business models, was put on the auction block last fall. The whispered price tag — based on whispers that seemed to come primarily from the magazine’s existing owners, the Forbes family and the Bono-backed venture fund Elevation Partners — was around $400 million, but the credibility of that number was difficult to gauge because Forbes‘ financial performance wasn’t public. Until now.

Ken Doctor, a media consultant who also writes for the Nieman Journalism Lab, got his hands on a copy of the financial documents that Forbes has been giving to potential bidders — a group that appears to include primarily companies in Europe and Asia, according to a report in the Wall Street Journal.

As Doctor notes, anyone who expected to see evidence of a business-model breakthrough or a jump in cash flow because of its online experiments is going to be disappointed: the documents show that revenue levels are “significantly lower than public estimates” that emerged when it first announced it was for sale. For example, the full-year revenue number for 2012 was less than half of what some sources estimated that Forbes pulled in that year.

According to the pitch package, which one assumes would put things in the best possible light, Forbes had total revenues of $138 million in 2012, the last year for which there are actual financials as opposed to estimates. That makes the alleged $400-million asking price about three times revenues.

Is the brand worth 25 times cash flow?

Three times revenues isn’t a big multiple for a media company — assuming it can show strong growth (which is another question mark) — but looking at Forbes‘ actual bottom line makes the price tag look substantially worse, as Doctor notes: according to the documents he obtained, the magazine made $15 million in EBITDA (earnings before things like depreciation and taxes) in 2012 and was expecting to make $20 million last year.

That makes the price tag of $400 million between 20 times and 27 times the company’s pre-tax profit, when most media companies sell for five or six times.

Of course, having a pre-tax or even pre-expense profit of any kind makes Forbes look better than some of its publishing brethren — including Newsweek, which was sold for $1 and the assumption of liabilities in 2010 and was recently sold again. But 26 times EBITDA is still a pretty hefty multiple for a company that says it was only able to increase its revenues by about 5 percent last year.

While experiments like BrandVoice — the “native advertising” strategy that chief product officer Lewis D’Vorkin launched for advertisers, giving them a platform for their message that is virtually identical to that given to regular Forbes columnists — have been successful to the extent that they are generating new revenue (about $25 million in 2012, the documents say), the magazine is still losing print circulation and print revenue faster than it can replace it, just like everyone else.

The big question mark for Forbes, as Doctor points out, is whether a foreign media player like Germany’s Axel Springer will be willing to overlook the actual financials and cough up what amounts to a massive premium for the brand name — especially when some media observers believe that the BrandVoice approach has diluted the value of that brand to some extent.

Post and thumbnail images courtesy of Shutterstock / Vladimir Koletic



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