The mainstream media model is broken. In a recent poll by communications firm Edelman, 52% of Canadians said the media fail to be objective and non-partisan. Meanwhile, technology has changed the way young consumers access news and information.
The transition from traditional forms of media to democratized online communities seems inevitable. Now, investors can bet on this transition through a recently listed share: Vertical reach portfolios (TSX: FORA). Here’s a closer look.
Move away from mainstream media
The mainstream media model does not really add value to its consumers or stakeholders. The need to reach a large audience and hold their attention dilutes the editorial process. Meanwhile, advertisers on traditional platforms like TV and radio lack the sophisticated tools they need to determine if their ads are reaching the right people.
Young consumers and startups have abandoned this model in favor of social media. According to MediaSmarts, 61% of Canadians aged 18 to 29 receive the latest news through digital platforms such as social media or websites. In other words, online communities are the primary source of information for the next generation.
Since 2010, VerticalScope has actively acquired these niche online communities. This year, the team listed their digital media empire on the Toronto Stock Exchange.
At the time of registration, VerticalScope claims to have over 1,200 online communities in its portfolio. This includes specialty websites like the Harley Davidson V-Twin Forum, ElectricianTalk, Guitars 101, Veggieboards, and Michigan Sportsman.
These hyper-targeted content sites tend to attract passionate readers who are more likely to take up premium subscriptions or purchase merchandise through the digital platform. In other words, they are easier to monetize.
In total, this basket of niche websites attracts 101 million unique visitors every month and has 55 million registered users. The user base is monetized through a combination of personalized digital ads and subscriptions. VerticalScope is an online media giant.
In the past 12 months, VerticalScope generated US $ 61.6 million (C $ 77.1 million) in revenue. The majority of that was generated from e-commerce sales, while less than half came from digital advertising.
During the same period, the company reported US $ 26.6 million (C $ 33.3 million) of free cash flow. The company raised $ 143.8 million in its initial public offering and says it has acquisition targets that could collectively add US $ 18 million (C $ 22.5 million) in gross profits to short term.
VerticalScope stock has risen 28% since its IPO in June. The company is currently worth $ 590 million. This implies a price / free cash flow ratio of 17.7. This is perfectly reasonable for a digital media company.
After raising capital in the public market, the company could significantly expand its portfolio and unlock more shareholder value in the years to come. Keep an eye on it.
At the end of the line
VerticalScope is a digital content conglomerate. For decades, this team has amassed niche websites and online communities. This network represents a disruption of mainstream media and large-scale information platforms. It is clearly the future. This is why the stock should be on your radar.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content.
The Motley Fool has no position in any of the stocks mentioned. Foolish contributor Vishesh Raisinghani has no position in any of the stocks mentioned.