August 15, 2023

Making Sense of Puck’s Fundraising

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The Path to $75M for Puck

Last week, Sara Fischer at Axios reported that:

Puck, the buzzy media startup that covers the intersection of Hollywood, Silicon Valley, Wall Street and Washington, has raised over $10 million in a Series B growth round, Puck co-founder and editor-in-chief Jon Kelly told Axios.

The new round values the company in the mid $70 million range, post-money, a figure first reported by the New York Times.

For those that follow me on social media, I dug into the revenue potential of Puck. I’ve spent time thinking about those numbers and wanted to re-explore them again today. I also, admittedly, had a hard time understanding how Puck could be valued at $75 million, especially in this day and age of media companies.

After reading The New York Times, Adweek, The New Yorker, and Axios, I found myself dealing with four competing data inputs:

  1. The free & paid email list grew from 200,000 in November 2022 to 240,000 in March 2023, which is 20% total growth.
  2. Puck told The New York Times that it was seeing 20% monthly growth in paid subscriptions, so if we extrapolate that from October to March, it’d grow from under 20,000 to 52,000.
  3. The conversion rate expanded from 10% in November (20,000 paid subscribers out of 200,000 total subs) to 22% in March (52,000 out of 240,000 total subs).
  4. In a leaked memo from May 2023 that Axios found, Kelly said Puck’s paid subscriber base ‘has more than doubled during the past year.'”

If you’re confused, that’s okay. There’s a lot going on here and this piece can quickly devolve into pure speculation. Here’s what I do know. According to Piano‘s Subscription Performance Benchmark Report in 2022, which aggregates its clients data:

Our data shows that a significant number of registered users who later pay for a subscription make that jump quickly, often during the first 24 hours after registering. Even more convert during the first month. But the biggest portion of paid conversions from registered users — over 40% — still happens after that first month.

Simply having a user’s email address doesn’t mean they’ll automatically convert. On average, approximately 3% of registered users convert to a paid subscription within a year of registration. But the best-performing sites can have over 12% conversion and the worst performers a little over 0.5%.

Over 20% of the audience converts in the first 30 days of someone registering. The 40% referenced in the quote takes place from months 2-12, so it obviously slows down when broken out monthly. But what this means is that if Puck is like the other publishers that use Piano, it’s unlikely that it’d see massive conversion rate increases while newsletter growth stays relatively constant, especially since industry standard is for conversion rate to drop off after the first month.

Here is what I feel comfortable saying. There’s no way the conversion rate has expanded to 22%, especially if subscription revenue has only “more than doubled” from May 2022 to May 2023. What is more likely is that the growth rate has actually slowed down as the total number of paying subscribers increased, which is expected behavior. A smaller number growing 20% monthly makes sense; a larger number growing at that same rate becomes an impossibly high number.

And that’s no knock on Puck. This is expected behavior as a business grows. Things naturally slow down from a percent growth perspective. If you double a penny every day for 30 days, you’re left with $5,368,709.12. It’s easy to fathom doubling a penny for 5 or 10 days, but after that? The number just starts growing like crazy.

None of this takes into consideration that Puck also has what seems to be a healthy advertising business. In the same leaked memo, Kelly is reported to have said that “company advertising revenue from the first half of 2023 is already up 200 percent from the same period last year (and it’s still only the beginning of May).”

And so, this brings us to the question of company valuation.

In my original LinkedIn piece, I estimated that Puck was generating approximately $14 million in revenue across subscriptions and advertising. My gut suggested that this was too high, but a reader reached out to me suggesting that this number was in the ballpark. So, let’s stick with $14 million. And, according to Axios, “The firm is not yet profitable on a 12-month trailing basis but has charted several profitable months.”

If we assume that a healthy media company valuation is based on 10x EBITDA, then to be worth $75 million, it’d need to be generating $7.5 million in EBITDA. Since it’s unprofitable, let’s backdoor into a path to that EBITDA.

$40 million in revenue at a 20% margin gets you $7.5 million in EBITDA. Could it generate a higher margin than that? Anything is possible. If it didn’t add any additional costs and was able to grow revenue to $21.5 million, it’d now have a margin of ~35% and the EBITDA target of $7.5 million. But since it’s already intending to add another 8-10 people, costs are going to rise, so margins will compress.

Here’s what I think… With all the numbers that I have seen, and if $14 million is the actual revenue, Puck is overvalued at $75 million. But a valuation is also based on a growth rate and if the business has doubled year-over-year and is continuing to show strong numbers going into 2024, the company could grow into the valuation.

The bigger risk is if investors required a liquidation preference on their investment. What this effectively means is that investors get a guaranteed return before any common share holders get anything. And so, if the liquidation preference was 2x and investors put in $10 million, they’d have to see a return of $20 million before any other shareholders got anything. The company would need to sell for materially more than the $75 million valuation for the founding team to make money.

A relatively straightforward way to correct for the revenue/valuation disparity would be to increase the price of the subscription. As The New Yorker said, “In that way, Puck is a sort of trade publication for a privileged class of strivers.” A privileged class of strivers isn’t going to bat an eye between $100 and $200. Much of this would immediately pass to the bottom line, giving the business that EBITDA jump it needs.

Puck is a fascinating business. It is clearly a must read to its audience. It absolutely passes the quality test of “if it disappeared tomorrow, would anyone care?” And so, if it continues on its path, it should be okay. But as it stands today, the valuation gives me pause. The fact that the team raised at that valuation in this economy is quite remarkable. But valuation isn’t everything when raising money.

One of the things I respect about Semafor’s Ben Smith is he is unabashedly addicted to finding that next scoop. We all knew something was off about Ozy, but it was his reporting that finally popped that bubble. He often knows something before anyone else in the space.

That’s why I always look forward to receiving his and Max Tani’s newsletter every Sunday night. I get perspective on areas of media that I simply have little experience in and a view on what’s going on globally in the media industry. It’s a must read for the ambitious media professional.

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Does deleting content help SEO?

In a “why is this even a story,” Gizmodo reported last week that CNET had been deleting stories from its archive.

Archived copies of CNET’s author pages show the company deleted small batches of articles prior to the second half of July, but then the pace increased. Thousands of articles disappeared in recent weeks. A CNET representative confirmed that the company was culling stories but declined to share exactly how many it has taken down.

The reason to delete content, at least in the eyes of CNET, is that it’ll make the site stronger from an SEO perspective. In a memo, CNET said:

Content pruning removes, redirects, or refreshes URLs that are no longer relevant or helpful to our audience, including outdated or redundant content that may confuse or frustrate users looking for up-to-date information. (For example, a 1996 article about available AOL service tiers is no longer relevant or useful.)

Our teams analyze many data points to determine whether there are pages on CNET that are not currently serving a meaningful audience. These metrics include page views, backlink profiles and the amount of time that has passed since the last update.

Is CNET right to be doing this? I reached out to my friend, Mike King, who is the founder of iPullRank, an SEO agency and probably one of the smartest SEO people I know. He said:

Content pruning definitely requires a metric-driven approach, which is why we recommend it as a part of a content audit. We use a few composite metrics indicating the content’s current performance vs. its performance potential to determine whether something is worth keeping, updating, or deleting. It usually includes some element of search volume for the subject matter, the difficulty of ranking better, and a comparison of whether there is another page on the site that would be a better owner of the keyword targets. When the performance and the potential aren’t at a certain threshold, it becomes pretty clear that it needs to be deleted.

I bolded those words because they’re critical. The point is not to just delete content because it’s old. Instead, you want to be assessing the content and then determining what to do with it. Maybe the content’s fine, so you keep it. Maybe with some updating, you can get it to rank for an otherwise hard to reach keyword. And in some instances, the page isn’t worth keeping around and you should delete it.

But don’t just delete and move on. Instead, what you want to do is redirect those pages to ones that are going to last. For example, if there are ten articles all competing for the keyword “CDPs for Media Companies,” your content audit might determine that you only need one. The other nine articles would be 401 redirected to the survivor. If you don’t do this, you’ll be looking at soft 404s, which can hurt the site.

The reality is this… some content simply doesn’t work for you when it comes to SEO. And so, it might make sense to get rid of it. On the other hand, if you’re looking at your content as a full library to one day, maybe, train an AI-powered chatbot, deleting content would not be helpful there. In other words, deleting content might be good for SEO, but it might not be good for other reasons. You have to assess the full picture to make sure you’re making the right decision.

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