The Other McCain

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HuffPo/AOL Deal: On Second Thought … Hell, No, It Still Doesn’t Make Any Sense

Posted on | February 7, 2011 | 34 Comments

After this morning’s stunning news that AOL had agreed to pay more than $300 million to buy the Huffington Post, I tried to find some argument to justify the deal.

Honest, I did. I even read Felix Salmon’s analysis at Reuters:

The $315 million that AOL is paying for the Huffington Post is roughly 3X the valuation seen at its last capital raise two years ago, is 10X its 2010 revenues and is roughly 5X estimated forward 2011 revenues. Those are all big numbers, but not insanely so, for what is clearly a big strategic move on the part of AOL. After all, AOL has a market cap of $2.3 billion: right now it still dwarfs HuffPo. That might not be true in a few years’ time, if HuffPo continues growing at its current rate and AOL continues to lose subscribers and revenues.
My feeling, then, is that this deal is a good one for both sides.

Yeah, tell me another one, pal. HuffPo extimates its 2011 revenue at $50-odd million, but what about its net profit?

What’s that Felix? I can’t hear you for all these crickets chirping.

Jerry at Goldfish and Clowns is also wrestling with the finances of the deal: 

The only semi-rational logic behind AOL shelling out serious coin for HuffPo is the belief Huffington’s lightworker abilities will somehow draw ten bajillion visitors per nanosecond to AOL . . .

The market isn’t buying that argument and AOL stock, which was trading at $24 a share a week ago, is now down to $21 and change. The Wall Street Journal‘s Shira Ovide has a good analysis of this floptastic deal while my friend Donald Douglas examines, “What Huffington Post Means for Journalism’s Future.”

What it means, I suspect, is that the Left is willing to “invest” in liberal media ventures that are supposedly for-profit but which, in fact, lose money. Because, after all, whose money is being invested? Not theirs.

Five words: Government employee union pension funds.

That, I suggest, explains this whole deal. Private investors are now selling their AOL shares, while managers of pension funds for AFSCME, SEIU and other unions are buying AOL stock, thus providing the investment capital necessary to fund expansion of the Left’s online media presence in advance of Obama’s re-election campaign.

Yeah, and maybe George Soros is buying AOL stock, too, for all we know.

Call me a kooky conspiracy theorist, if you like, but when a business deal doesn’t add up as dollars-and-cents capitalism, there must be some other explanation. And if ever you see a turtle sitting on top a fence post, you know it didn’t crawl up there by itself.


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Category: Blogging, Media Bias

Comments

  • Anonymous

    My brother and one sister use AOL both live in Northern Virginia. As I recall when we bought our first computer in 98, the consensus was that AOL users chose AOL because they didn’t like challenges. AOL made it easy but limiting. While my brother (twin) has been poisoned by the kool-aid I don’t think I’ve ever heard her say a political word ever and I doubt that my brother would like the shrill that HuffPo would bring if they remake AOL in the HuffPo image. In Arianna’s E-mail to her minions touting the 117 million unique visitors they would now be reaching, she neglected to mention the $315 mil.
    A word about AOL’s financial acumen for what it’s worth. The concrete company I worked for from 1995 to about 2000 we built I believe eight office buildings and four parking garages at their Loudon County campus. The total contracts including our’s had to be half a billion plus the land.

  • http://getalonghome.com/ GAHCindy

    Makes more sense than anything I can come up with. Yer thmart.

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  • http://twitter.com/nohammernosickl Dan

    They paid $300 million for a web domain. Reminds me of when First Union bought The Money Store, which basically amounted to paying $2.1 billion for the phone number 1-800-LOAN-YES.

    I can’t imagine how they came up with the value of HuffPo.

  • Theunmccain

    Stacy. You write:

    “Five words: Government employee union pension funds.

    “That, I suggest, explains this whole deal. Private investors are now selling their AOL shares, while managers of pension funds for AFSCME, SEIU and other unions are buying AOL stock, thus providing the investment capital necessary to fund expansion of the Left’s online media presence in advance of Obama’s re-election campaign.”

    Sir, I’d really like to see your sources on that. My hunch is that your roiling gut told you that this is another Leftwing conspiracy so you decided to tell your readers that this is what’s going on.

    You are so out to lunch on this one . . . it’s a new paranoiac high (low) for you, Stacy.

    First: AOL’s major owners are institutions (which certainly can include pension funds and the like) but which the last time I checked weren’t owned or controlled or significantly invested in by the dreaded unions and their funds. Here’s the list (yeah, from AOL,but it’s quick at hand):
    http://www.dailyfinance.com/company/aol-inc-aol-inc-common-stock/aol/nys/institutional-ownership

    Second, no one (not even the specialists on the exchange) know yet the names of who’s buying or selling AOL stock today. The info’s just not available. Or maybe you have a Special Source no one else has.

    Third, you betray your fundamental ignorance about the way the capital markets work. If I wanted to provide investment capital to a company, the last way I’d do it would be to purchase its stock on a public exchange. Stacy, Stacy. That’s a secondary market, the buyers and sellers are exchanging stock for cash, none of which goes to the underlying company. The only way to provide a company with new funds is to purchase newly-issued stock, provide it with a direct loan, or purchase newly-issued bonds.

    I work in this area every day and know the mechanics pretty well. It’s abundantly clear that you do not. So, go get yourself some learnin’ in finance or just stay silent. You’re only revealing the degree to which you’re willing make bold assertions without a shred of underlying evidence.

    Final, you may well be right that this is a crazy deal. I could make the case that AOL wants to use HuffPo to slow its losses (retained revenues which otherwise might be lost are actually as real as new revenues from growth), but this strategy has been a loser in the media/internet space since before the bubble in the late ’90s. There’s an old saying that the best way to make a small fortune in this area is to start with a large fortune.

  • Joe

    Huff Puff generates $30 million a year in revenue? I find that hard to believe. And Stacy hit it exactly, and what is the profit?

    AOL needs to generate traffic, so it figures Huff Puff will help it do so. Just like Google bought YouTube and created Google Earth to help generate traffic. Okay. It is worth something for that. But to pay $300 million + for Huff Puff?

    As we used to say as kids: “That is friggin retarded!”

    But if AOL is giving out cash like that, I would take it too. That crazy Greek feta head is clearly crazy like a fox and blessed by the gods.

  • Joe

    Paying 10x the proven net profit or projected profit might make sense. Paying 10x gross? That is for suckers.

  • http://thecampofthesaints.org Bob Belvedere

    Quoted from and Linked to at:
    What Is AOL Huffing?

  • Theunmccain

    Bevelhead:

    Read my comments above. You’re just making yourself sound as willfully ignorant as Stacy.

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  • JeffS

    Bevelhead

    “Ah, Earth humor! AR AR AR AR AR AR!!”

  • Theunmccain

    Yeah, you wouldn’t believe what the geniuses on Wall Street can come up with . . . back before the Internet Bubble Burst, a bunch of established “smart” companies dropped billions on start-ups that didn’t even have revenues. Believe it or not, that’s how Carly Fiorina earned her chops at Lucent, getting out just in time . . .

  • Theunmccain

    JeffS:

    Just sayin’, if “Bob” repeats Stacy’s arguments, he should have some ‘splaining to do to his own readers. Read my post above and tell me where I’m wrong.

  • JeffS

    I’d take your post just a bit more seriously without the ad hominem. Just sayin’.

    Otherwise……

    “Ah, Earth humor! AR AR AR AR AR AR!!”

  • Anonymous

    Without a complete set of financial statements and honest projections, we don’t know if the deal makes sense financially or not. What we do know is that it’s the kind of business with tremendous operating leverage, meaning that once enough revenue is generated to cover its fixed costs, each additional dollar of revenue drops gobs of dough down to the bottom line.

    I read somewhere they get something like 25 million viewers a month. That’s about 8% of the U.S. population. I personally read the U.K. Telegraph and Financial Times regularly, so I’m sure there are plenty of English speakers in foreign countries who visit HuffPo. That means their U.S. penetration rate is even lower than the 8% figure. The economics of advertising is powerful. If, for example, they are able to double their viewers, then the people willing to advertise increases AND the amount they charge for the advertising also increases. That’s what I mean about the powerful operating leverage of the model.

    So, depending on your assumptions about future U.S. and foreign penetration rates, you can make a pretty solid case for the deal making good financial sense. In addition, AOL is a publicly traded company. Won’t it require shareholder approval? They haven’t yet filed a proxy statement yet, only the 8-K announcing the deal. If it does require shareholder approval, then the board of directors will likely got a fairness opinion from an investment bank saying its a fair deal so management can reccomend to shareholders that they approve the deal.

  • http://www.facebook.com/mattr1 Matt Ross

    This was a weird thing for me. I can’t see the point of it. The only thing I can compare it to is Comcast’s purchase of NBC. Both purchasers are in business models that are slowly dying, and both might be buying content providers in order to diversify. Also, both are buying content providers that are far left.

  • Theunmccain

    JeffS:

    Actually, I tried to pitch my tone, which you characterize as “ad hominim,” to the level of invective in Stacy’s post. I’d say that “paranoid” is a pretty apt description of a commentary that attributes to his self-selected enemies actions which, as I demonstrated, they couldn’t possibly have engaged in, even if they were so-inclined. And it’s not as if Stacy refrains from a liberal (sic!) application of the “ignorant” label.

    So, read the post and tell me where I’m wrong.

  • Theunmccain

    Good points, all. I’m still dubious (and in stunned agreement with Stacy at least as to the bottom line).

    AOL’s 8K says the deal does not require shareholder approval, probably because their lawyers helped them structure it in a way that it could be deemed “immaterial” or an “ordinary course of business” transaction.

  • Joe

    gigi is back, wrapped in a soiled sticky sock.

    And I am definitely not singing “Thank heavens for little trolls.”

  • Anonymous

    Can it really be this dense or perhaps just that defensive. Tum appears to not realize that your accusation of ad hominem is directed at his, well ad hominem name calling at Bob who merely touted his link with the clever play on words. Ah thats it undead, unmccains as well as unattractives no comprendi clever.

  • Mark A

    It’s simple: AOL either makes a move like this, or they are more ‘done’ than ten minute toast. They are a twenty foot long panel sided station-wagon in the year 2011. What other ‘play’ did they have?

  • Anonymous

    It’s gone. If it wasn’t gg, it was just as bullheaded.

  • Anonymous

    BWAHAHAHAHAHAHA!

    This gets funnier every time I think about it.

  • Anonymous

    So they’re toast. I’m not sure what having the genuine Arianna
    Huffington does for them that some one else couldn’t.Not that she hasn’t come a long way.
    http://www.americanthinker.com/2010/03/soros_another_golden_match_for_1.html

    The Comcast purchase gets them a long established brand and all of the local NBC channels. AOL has bought some other small blogs over the last year or two such as TechCrunch but apparently has decided that to get back in the Red they need “expand it’s sense of community”. Well they’ll get a community that’s for sure.

  • Anonymous

    @ Wombat
    the persons or person who comments as “me” is almost assuredly gg. And I believe that whoever called that last “Smitty” post as gging sock puppet is also correct. I Forget who said that don’t feel like looking.

  • http://twitter.com/jslconsulting John LaRosa

    Liberals never seem to get that tricky concept called “net”.

    Stacy, I know we’re both old enough to get the following reference: AOL buying HuffPo is like “Pong” buying “Donkey Kong”.

    The whole thing reminds me of Danny DeVito’s “Buggy Whip” speech from “Other People’s Money”. Yours is the only rational explanation I’ve seen so far.

  • Anonymous

    I dunno, AOL might find a way to make this work. They’ve survived a lot of other things that were supposed to kill them; they aren’t known as the cyber-cockroach for nothing.

  • Bwahaha!

    Nice to know you managed to cool your nerves, see the funny side to life and not get enraged more often – i mean 24/7.

    Bwahaha!

  • http://proof-proofpositive.blogspot.com/ Proof

    The story in Oct 2009 was that the Huff Po was spending more money than they brought in and weren’t expected to survive using their current business model. I guess “suckering a big sugar daddy” is a good business plan after all!

    http://proof-proofpositive.blogspot.com/2009/10/huffington-post-deathwatch.html

  • Trogrle

    …but what about its net profit?

    How much profit does Facebook make, or Twitter?

  • http://thecampofthesaints.org Bob Belvedere

    Thank you, gentlemen.

  • Anonymous

    Headline at Moonbattery
    “HuffPo Moonbats React to AOL Deal With Shrieks of Despair”
    Some of HuffPo’s commenters included, fun for all.
    If this deal works out long term I see some short term scares as folks from both HuffPo and AOL flee.

    http://www.moonbattery.com/archives/2011/02/huffpo-moonbats-3.html

  • jms

    Think of this as the first installment payment on Barack Obama’s $1,000,000,000 reelection campaign. It’s the only explanation. Watch the money spread out and turn into individual donations to the Obama campaign. That one billion dollars has to come from somewhere, and it isn’t going to be from the pockets of his unemployed and poverty-stricken supporters.

  • Anonymous

    They’ll have more difficulty laundering money thru the FED Govt to ACORN to SEIU channel although since they knew this a year ago I’m sure that gap is covered.

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