👑 Reign Check: Is Content Still King?

Good morning, friends.

Welcome to Club Acquire, where we do our weekly exercise to find the best opportunities in need of our unique set of skills.

“If You’re Not Embarrased When You Ship Your First Version, You Waited Too Long.”

Matt Mullenweg

Ok Matt I hear ya - and with that in mind… 

We dip our toe into the raging waters of content. Content websites stand out as one of the most straightforward online business models, making them an excellent on-ramp to the online business super-highway. Think of them as dynamic internet billboards, focused on a specific topic, and primarily generating revenue through ads, affiliates, digital products or subscriptions. 

On the deal docket this week:

  • 💸 Riches in Niches: $500k/year doing what with fast food?

  • ♣️Deal Me Out: Two Murderers, TwoDrifters.us, seeks a sale

  • 🧠Idealation: Is now a good time to buy a content site?

  • 🔗 Helpful Links: Mushfiq has bought and sold over 200 content sites 🤯 

💸 Riches in Niches

You read that right - this leading content website in the fast food niche, up for grabs for a cool $1.55M (3.34x multiple), makes money running display ads on a comprehensive up-to-date list of menu items (including secret menus), prices and nutritional information for more than 400 restaurants. 

How else will you decide whether to order the quesarito or the burritodilla next time you hit Chipotle? How else will you know how to get 20% more food for the same price while you’re there?

Ok, at this point, we all know you just ask for half chicken and half steak because no one can accurately scoop a half scoop, it can’t be done.

This listing really points to how niche the best content sites can be.

This site has been purchased by not one but two different investment firms over the past 5 years owing to the incredible consistency of its profits.

Past 6 years of SDE

Pros and Cons

In this case, the Pros and Cons are different depending on what you are looking for. This site has the potential to be a very low maintenance semi-passive investment that cash flows nicely (evergreen niche) but growth prospects do not look all that good (in my estimation). After reviewing the interview with the current owner (an investment firm), it's evident that they've extensively maximized the business's advantages. It might be like squeezing water out of a stone at this point. Anyone who wants to put in the time and elbow grease to improve this site will likely see diminishing returns on their effort. I've never read a more detailed account of the optimizations performed by an owner/team in a content business.

Other assets include a cold email list (not used since 2020) with 18K members which could be utilized for promotional deals. There is very little social media presence.

Interested in learning more? You can request more information here. It looks like the asking price was dropped from $1.9M to $1.55M.

♣️Deal Me Out

It’s a good example of what NOT TO BUY (at least not anywhere near the asking price).

The site is a relationship and travel blog called two murderers, I mean twodrifters.us. Ok I like the .US domain; it’s cute, but two drifters? It sounds more like two hitchhikers you wouldn’t want to pick up, let alone take relationship advice from.

At this time they are asking $200K (we’ll see how long before they drop the price) - the TTM profit of $52K puts the multiple at 3.8x earnings (already high), but let’s see how much worse it gets.

TTM P&L

We can see that after December 2022 (right around the time of major sweeping google updates), the earnings drop significantly. This is more than seasonality and points to one of the main risks with content/affiliate sites. You are beholden to the whims of the google gods.

Look at the organic traffic carnage after Dec 2022

If we project the earnings out as an average of the last 10 months (after the update) annualized, we will get a number around $36K (which is still probably too high as the entire trend is down, and more Google updates are coming that will likely solidify the trend), putting a 5.5x multiple on the asking price, which is astronomical considering the duties of this site all fall on the seller (there are no writers and not much of a budget to work with).

I'd conservatively estimate the next twelve-month profits to be more like $30K (based on the average of the past few months). This leaves us with a 6.66x multiple for the site, which just about sums it up 👿 . 

That's (mostly) just the numbers, but they paint a bleak picture. Look, I’m (surprisingly) not trying to be an a$$, but the content is also pretty clickbait-y and mainly just listicles. Google is now punishing

“Content that seems to have been primarily created for ranking well in search engines rather than to help or inform people.”

Hey, I’m not saying that a list of the top 10 most romantic things to do in Myrtle Beach isn’t at all helpful but google seems to be.

The one bright spot I see is that unlike a lot of content sites, this one drives around 35% of traffic from organic social. However, is that enough to rescue this site from a slow death? Are there other services or affiliates that you can push to add revenue? Although I can brainstorm ideas, I think it's unlikely to be worth the risk (at the current price). 

What price would I pay for the cash flow?

You never want to overpay for any business, but overpaying for a business in a tailspin is even worse. That said, the one thing that content sites do have going for them is incredibly high-profit margin. This site boasts a 96% profit margin (of course if you value your time and need to create more content that number doesn't mean much). But if a site has evergreen content, it is possible that it can continue to cash flow far into the future with less effort.

I personally wouldn't want to pay over 2.5-3x earnings (my own projected earnings not TTM earnings), in which case I can't see paying over $75-90k (far cry from the 200K list price) for the site, and even then, I'd be nervous about more Google updates and the job of having to re-formatt all the content.

That gets me thinking…..

🧠Idealation

Is now a good time to buy a content site?

I have been giving this question some serious thought lately, and I'll cut straight to the unsatisfying answer….Maybe. Ok Ok, sorry, but you know it's not black and white. Not all content sites are created equal. Some sites are doing well with recent Google updates and have affiliate offers with products that drive significant revenue while others have traffic sliding off a cliff and no bounce in sight. Buying or starting a content business that works is a constantly shifting and evolving struggle to optimize and monetize relevant content.

Also, keep in mind that a site doing $500/month will be a lot easier to 10X than a site doing $5K/month, so there is a limiting factor when it comes to how much money you can deploy in search of a multi bagger (at least through easy wins). As we saw with the fast food site, it has been stuck around $500k in profit for years, all while being highly optimized by very professional teams.

So let's look at some pros and cons for the content business model:

Pros:

  • Organic traffic is free so you won't have high advertising costs to overcome if you want to sell a product (good to pair with an existing product? I want to explore this path later)

  • High leverage means that you create the content once and it can live online driving views or affiliate revenue for a long time - high ranking pages are like assets that drive revenue with little additional effort

  • High profit margins mean that once you create revenue you can start hiring writers and outsourcing more tasks like writing, formatting or link building

Cons:

  • Competition - it's easy and cheap to start and compete

  • Google traffic comes with big-time platform risk (as we saw above)

  • Information is cheap and trending toward zero as companies will give it away to drive leads (but that is one path to an exit as a larger company might want to buy your audience vs build their own)

With so many content sites I see for sale at the moment, I can't help but think of an old Wall Street adage in stock picking (and in the kitchen for that matter) "Never catch a falling knife".

Of course, there are investors and operators that have been massively successful doing just that. The key is to know who you are and what you do well. The time for catching knives does come around, and perhaps we are starting to see glimmers of that. I have seen some listings adjust their multiples way down while others seem more stubborn or delusional in their expectations.

💪 Flex Your Valuation Muscle:

Below are some key metrics for a deal currently on the market. Can you guess the listing price?

What is the asking price for this business?

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Poll Of the Week:

What size company are you interested in buying?

(If you are interested in an acquisition)

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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