Monday Note

The Nordic media giant wants to be the #1 worldwide of online classifieds by replicating its high-margin business one market after another, with great discipline. 

It all starts in 2005 with a Power Point presentation in Paris. At the time, Schibsted ASA, the Norwegian media group, is busy deploying its free newspapers in Switzerland, France and Spain. Schibsted wants its French partner Ouest-France — the largest regional newspapers group — to co-invest in a weird concept: free online classifieds. As always with the Scandinavian, the deck of slides is built around a small number of key points. To them, three symptoms attest to the maturity of a market’s online classified business:  (a) The number one player in the field ranks systematically among the top 10 web sites, regardless of the category; (b) it is always much bigger than the number two; (c) it reaps most of the profits in the sector. “Look at the situation here in France”, the Norwegians say, “the first classifieds site ranks far down in Nielsen rankings. The market is up for grabs, and we intend to get it”. The Oslo and Stockholm executives already had an impressive track record: in 2000, they launched Finn.no in Norway and, in 2003, they acquired Blocket.se in Sweden. Both became incredible cash machines for the group, with margins above 50% and unabated growth. Ouest-France eventually agreed to invest 50% in the new venture. In november 2010, they sold their stake back to Schibsted at a €400m valuation. (As we’ll see in a moment, the classified site Le Bon Coin is now worth more than twice that number.)

November 2012. I’m sitting in the office of Olivier Aizac, CEO of Le Bon Coin, the French iteration of Schibsted’s free classifieds concept. The office space is dense and scattered over several floors in a building near the Paris Bourse. Since my last 2009 visit (see a previous Monday Note Learning from free classifieds), the startup grew from a staff of 15 to 150 people. And Aizac tells me he plans to hire 70 more staff in 2013. Crisis or not, the business is booming.

A few metrics: According to Nielsen, LeBonCoin.fr (French for The Right Spot) ranks #9 in France with 17m monthly unique users. With more than 6 billion page views per month, it even ranks #3, behind Facebook and Google. Revenue-wise, Le Bon Coin might hit the €100m mark this year, with a profit margin slightly above… 70%. Fort the 3rd quarter of this year, the business grew by 50% vs. a year ago.

In terms of competition it dominates every segment: cars, real estate (twice the size of Axel Springer’s SeLoger.com) and jobs with about 60,000 classifieds, roughly five times the inventory of a good paid-for job board (LeBonCoin is not positioned in the upper segment, though, it mostly targets regional small to medium businesses).

Le Bon Coin’s revenue stream is made of three parts: premium services (you pay to add a picture, a better ranking, tracking on your ad); fees coming from the growing number professionals who flock to LBC (many car dealerships put their entire inventory here); and advertising for which the primary sectors are banking and insurance, services such as mobile phone carriers or pay-TV, and automobile. Although details are scarce, LBC seems to have given up the usual banner sales, focusing instead on segmented yearly deals: A brand will target a specific demographic and LBC will deliver, for half a million or a million euros per annum.

One preconceived idea depicts Le Bon Coin as sitting at the cheaper end of the consumer market. Wrong. In the car segment, its most active advertiser is Audi for whom LBC provides tailored-made promotions. (Strangely enough Renault is much slower to catch the wave.) “We are able to serve any type of market”, says Olivier Aizac who shows an ad peddling a €1.4m Bugatti, and another for the brand new low-cost Peugeot 301, not yet available in dealerships but offered on LBC for €15,000. Similarly, LBC is the place to go to rent a villa on the Cote d’Azur or a chalet for the ski season. With more than 21 millions ads at any given moment, you can find pretty much anything there.

Now, let’s zoom out and look at a broader picture. How far can Le Bon Coin go? And how will its cluster of free classifieds impact Schibsted’s future?

Today, free online classifieds weigh about 25% of Schibsted revenue (about 15bn Norwegian Kroner, €2bn this year), but it it accounts for 47% of the group’s Ebitda (2.15bn NOK, €300m). All online activities now represent 39% of the revenue and 62% of the Ebitda.

The whole strategy can be summed up in these two charts: The first shows the global deployment of the free classifieds business (click ton enlarge):

Through acquisitions, joint ventures or ex nihilo creations, Schibsted now operates more than 20 franchises. Their development process is highly standardized. Growth phases have been codified in great detail, managers often gather to compare notes and the Oslo mothership watches everything, providing KPIs, guidelines, etc. The result is this second chart showing the spread of deployment phases. More than half of the portfolio still is in infancy, but most likely to follow the path to success:

Source: Schibsted Financial Statements

This global vision combined to what is seen as near-perfect execution explains why the financial community is betting so much on Schibsted’s classified business.

When assessing the potential of each local brand, analysts project the performances of the best and mature properties (the Nordic ones) onto the new ones. As an example, see below the number of visits per capita and per month from web and mobile since product launch:

Source : Dankse Market Equities

For Le Bon Coin’s future, this draws a glowing picture: according to Danske Market Equities, today, the Norwegian Finn.no generates ten times more revenue per page view than LBC, and twenty times more when measured by Average revenue per user (ARPU). The investment firm believes that Le Bon Coin’s revenue can reach €500m in 2015, and retain a 65% margin. (As noted by its CEO, Le Bon Coin has yet to tap into its trove of data accumulated over the last six years, which could generate highly valuable consumer profiling information).

When translated into valuation projections, the performance of Schibsted classifieds businesses far exceed the weight of traditional media properties (print and online newspapers). The sum-of-the-parts valuations drawn by several private equities firms show the value of the classifieds business yielding more than 80% of the total value of this 173 year-old group.

– frederic.filloux@mondaynote.com
Disclosure: I worked for Schibsted for nine years altogether between 2001 and 2010; six years indirectly as the editor of 20 minutes and three years afterwards, in a business development unit attached to the international division.
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