Forbes And Snapchat: Are The Valuations Right?

Nov 25, 2013
Originally published on November 25, 2013 3:53 pm

Just as Forbes Media, which publishes Forbes magazine and Forbes.com, announced that it was up for sale earlier this month, online messaging service Snapchat announced that it was not – at least for now.

The presumed valuation of the two properties provides a snapshot of the opposing trajectories for old and new media.

Forbes has set its sale price at $400 million, which many analysts think overvalues the 96-year-old media company.

Snapchat, on the other hand, turned down a $3 billion offer from Facebook, which some analysts believe undervalues the year-old online service that allows users to send photos that disappears seconds later.

Here & Now media analyst John Carroll discusses whether the price is right.

Guest

Copyright 2013 WBUR-FM. To see more, visit http://www.wbur.org.

Transcript

MEGHNA CHAKRABARTI, HOST:

It's HERE AND NOW.

There's an interesting crisscross happening in the world of media companies these days: old versus new, paper versus Web, and lots of very, very big dollar signs all around. Joining us is HERE AND NOW media analyst John Carroll. Hi, there, John.

JOHN CARROLL, BYLINE: Hi, Meghna.

CHAKRABARTI: OK. So maybe old versus new, paper versus Web isn't that new. But when it comes to all this crisscrossing, what do you mean?

CARROLL: Well, we've got a case study going on right now, opposite trajectories going on. Forbes Media, Forbes magazine, Forbes.com puts itself up for sale at $400 million, which a lot of people think is overvaluing the company. Snapchat - online photo-sharing application - says it's not for sale at $3 billion, which a lot of people think, well, maybe is undervalued. So you've got this sort of moving in opposite directions, one a sort of hybrid, old media-new media company, the other a company that almost doesn't exist and is turning down 3, $4 billion in cash offers.

CHAKRABARTI: Well, clearly, you're not a Snapchat user, because I know that there are millions of young people out there who - it more than exists for them.

CARROLL: Right. And it's exactly what they want. They say delete is the new default. Because what Snapchat does, it allows you to share photos which disappear in seconds. So it's not that you can't capture them. It's that it's hard to capture them. And that's what they want. So, Snapchat has become very popular among young people.

It's a terrific tool if you want to do some sexting - which I have to admit, I'm a little behind on. But, basically, that's one of the purposes. But, in general, a lot of people are being stalked by their digital personas at this point. And they want things to disappear rather than linger. So it really suits the moment.

CHAKRABARTI: Right. So we'll talk about the popularity of Snapchat - Snapchat and why that it has to do with this - what does it has to do with this valuation issue in just a minute. But you mentioned Forbes Media, because that's an interesting story. A 96-year-old company which publishes both the magazine and Forbes.com with that $400 million price tag. But how did they come up with that number?

CARROLL: Well, nostalgia, mostly. In 2004, Conde Nast offered them $400 million. Two years later, an equity group called Elevation Partners, of which Bono is one of the partners, one of the investors, they bought 45 percent of Forbes Media for $264 million. So that would establish a valuation of maybe $530 million. A lot of people think that Forbes is - sort of has peaked. It's done a good job of developing digital revenue from advertising, especially from what they call native advertising, which is marketing dressed up as editorial content. But their revenue numbers are declining, and essentially, they're looking to liquidate at this point, before things get even tougher for them.

CHAKRABARTI: I mean, when you say liquidate, you really mean it. The Forbes family sold off its collection of Faberge eggs...

CARROLL: A terrific collection, too.

CHAKRABARTI: ...Victorian art, and a raft of high-end real estate, including a 171,000-acre ranch in Colorado that sold for $175 million. And New York University bought Forbes' headquarters in 2010. That was home to Forbes since 1962.

CARROLL: Right. And don't forget, they sold the yacht, too, which has Malcolm Forbes turning over in his grave. He loved that yacht. So, Forbes has had some tough times. You can talk about the two vanity presidential campaigns that Steve Forbes ran. That didn't help things out. But the magazine business is a tough business. And so it's been more and more difficult to make money. Forbes has an interesting sort of template on the digital side.

They've got 1,200 bloggers who are basically providing content for free. They've got all this native advertising. And what's happened is it's sort of been put in a Cuisinart, and all mixed up. That may be one of the problems, in the end, is whether people who go to the website know what the content is that they're reading, because a lot of it is marketing stuff passed off as actual editorial content. And that may drive people away in the end.

CHAKRABARTI: So Forbes having trouble gaining traction there with its $400 million valuation. And let's get back to Snapchat. Basically, Facebook wanted to buy it at $3 billion in cash.

CARROLL: Right.

CHAKRABARTI: Snapchat said no.

CARROLL: They said no. They - and there's a couple of theories. One is they think they can get more. And they think that, eventually, the media company is going to be worth more. Another one was these are two young guys from Stanford who basically, apparently, don't want to work for Mark Zuckerberg. There's some talk, too, that the Facebook offer is defensive, basically. Facebook wanted to buy Snapchat so it wouldn't have to compete with it in the future.

They have tried to come up with that kind of a messaging system and have failed at Facebook. So that's another issue. But essentially they're betting on the future. And you know as well as anybody: The model for these kinds of businesses, you build a following, then you build a business. That's what Facebook did. That's what Google did. That's what Amazon, to some degree, did. That's what Twitter is trying to do now. So when you look at Snapchat, you say there's all this potential here. You know, do I want to bet on that potential? And Facebook and to some extent Google said yeah, I'll bet on that right now.

CHAKRABARTI: Right. It's as old as, what, the Gillette razor, right?

CARROLL: Right.

CHAKRABARTI: You sell them the...

CARROLL: Sell the beard and...

(LAUGHTER)

CHAKRABARTI: Yeah.

CARROLL: And then sell the razor.

CHAKRABARTI: You get them with the razors. But let me ask you, it sounds like you don't think Snapchat is worth the 3 billion.

CARROLL: I wouldn't know. I mean it may be, it may not be. You have to know - you have to find your moment. And some people have. Twitter, you know, their stock is up 60 percent since their IPO. Their valued at $22 billion now. Groupon didn't know when its moment was. And they passed up $6 billion, and that's not coming back.

CHAKRABARTI: Right. But what I'm hearing underneath all of this is John Carroll, lover of magazines and newspapers saying why can't Forbes get sold for $400 million? Weep, weep, lament, lament, the rise of digital media.

CARROLL: Yeah. Well, I'm sort of the human equivalent of Forbes, you know?

(LAUGHTER)

CARROLL: I'm the old media. And we're going to lose something when we lose these old media, these traditional media. And you gain things from Snapchat, but you lose things when other media go into decline. So I'm hoping that everybody can just get along and keep going along. But I'm not sure that that's true. And I think that the marketplace is going to decide who survives and who doesn't.

CHAKRABARTI: Right. I mean we're in a moment in time where there's basically - we're in a brave new world of trying to value companies that don't even have, like, confident revenue streams. I mean that's another conversation for another day. But actually on that point, there are some people who are saying that, like, you know, these 3 billion, 4 billion dollar valuations are pretty irrational. So do you think we're headed towards another tech bubble?

CARROLL: It's possible. I think that there's so much of Wall Street invested in certain companies now that those ones are going to stay afloat. Snapchat, there's the potential for terrific profitability and sort of business. There's also the potential that it's the flavor of the month, and that there's going to be another platform that comes along that's going to be the one that the kids flock to. So the longevity of it is going to be a big issue, and I think that that's the risk that anybody betting on Snapchat would be running.

CHAKRABARTI: Well, we'll see how all of this sorts itself out. John Carroll is HERE AND NOW's media analyst and we have a link to his Campaign Outsider blog at hereandnow.org. John, thanks so much.

CARROLL: Thank you.

CHAKRABARTI: You're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.