On September 22, the Norwegian media group Schibsted announced a transaction to make it the sole owner of the French free classifieds site LeBonCoin.fr. The valuation for the deal? €400m ($540m). I must admit it : I fell from my chair(*). Not that I look down at Le Bon Coin, au contraire. In a previous December 2009 Monday Note (Learning from free Classifieds), I explained why news media should give a closer look to such sites. In my view, they could draw inspiration from five key components: a crystal-clear interface, deep concern for its users, a proprietary value proposition, software that keeps working, and a free model… with paid-options.
Still… Four hundred million euros! In last week’s deal, Schibsted bought back the 50% stake owned by Ouest-France, the French regional newspaper group. The deal nets €140m for the Breton group – now facing a €100m restructuring of its… paper-based classifieds. The deal involves an asset swap: Ouest-France gives up a 59% EBITDA business (Le Bon Coin), and increases its stake in the company Schibsted exits, Car & Boat Media, valued at €120m, a 29% margin business. Analysts I spoke to wonder: Is this really the best move for Ouest-France? Obviously, they’re selling off a jewel. And, no less obviously, they never fully grasped the free classifieds site’s potential.
Now, let’s consider two aspects of this deal: the context for media economics, and asset valuation.
Context. The €400m valuation for Le Bon Coin, a four-year-old business, is to be viewed against the backdrop of French media goings-on. To name but one example, Le Parisien, a powerful daily, is to be sold for around €120m (the family owners wanted €200m). Last year, it made about €240m in revenue and lost €6 m. Together, Le Parisien, and its national/regional edition, Aujourd’hui en France, have a combined circulation of 477,579 and a readership of 2.23m (that is an astonishing 4.7 readers per copy). Translated into an ARPU (Average revenue per User) equivalent, Le Parisien makes 496€ per buyer of the paper per year, and €106 per reader per year. Let’s keep those numbers in mind.
According to the Schibsted press release, Le Bon Coin is valued at 22 times 2009 revenue of €18m, and 11 times the 2010 expected revenue of €36m.
On the one hand, we have a great but money-losing news media brand, Le Parisien, likely to be sold for 0.5 or 0.6 times its revenue. And, on the other, a classifieds website, Le Bon Coin, valued 11 times its revenue.
Isn’t there an imbalance here? An excess of sorts?
Asset performance provides parts of the answer: strings of losses for the newspaper (although clearly getting better) against a whopping 59% EBITDA for the classifieds sites and its ultralight production structure (20 people).
But the real answer is elsewhere: expected growth.