American telecommunications giant AOL has bought political website The Huffington Post for $US315 million, representing the second major publishing acquisition the company has made within the last four months after it bought the Silicon Valley-focused blog TechCrunch.
The deal also means AOL has reportedly spent over $US500 million in transactions during the past year, buying web properties including social media company Thing Labs and online video distributor 5Min Media last October.
AOL also bought video distributor Goviral last month for nearly $US100 million, the Wall Street Journal has reported.
“Together, our companies will embrace the digital future and become a digital destination that delivers unmatched experiences for both consumers and advertisers,” AOL chief executive and chairman Tim Armstrong said in a statement.
However, some questions have been raised over the deal. In 2010 The Huffington Post generated $US30 million in revenue, and hopes to make $US50 million this year – along with an expected $US10 million profit.
The New York Times says the valuation was based on five times 2011 revenue.
Tech analysts say the price is overvalued, and that AOL will need to make the new Huffington Post Media Group a powerhouse in order to justify the expense.
Gartner analyst Ray Valdes told CNN that these acquisitions “were good moves individually, but they’ll have to work hard to prove there’s room for a web conglomerate that’s really just a motley set of sites”.
Some questions have also been raised about whether the acquisition, along with a recent valuation of Facebook at over $US50 billion, represents the beginning of a second tech bubble.
AOL shares fell by 4% after the deal was announced.
The transactions are clear evidence AOL is moving forward with its strategy to become a “content company” as it embarks on its own after the 2009 split from Time Warner, rather than a simple telco provider.
The Huffington Post announced the deal yesterday, saying that it would be bought by AOL for $US315 million, $US300 million of which will be paid in cash – that represents about 40% of the $US802 million AOL had to play with at the end of 2010.
Tim Armstrong said in a statement that the acquisition will create a “next-generation American media company with a global reach”.
The deal also represents a change of structure for the entire AOL group. As part of the acquisition, a new “Huffington Post Media Group” will be formed. This will administer all of the company’s content creators, including TechCrunch and Engadget, and will be run by Huffington founder Arianna Huffington.
“The Huffington Post will continue on the same path we have been on for the last six years – though now at light speed – by combining with AOL,” Huffington said.
“Our readers will still be able to come to the Huffington Post at the same URL, and find all the same content they’ve grown to love, plus a lot more – more local, more tech, more entertainment, more finance, and lots more video.”
The string of acquisitions made by AOL is hardly surprising. The company’s leverage in the web industry has been dwindling ever since the 1990s, ever since the decline of dial-up accounts. Its advertising business also fell way behind giants Google and Yahoo.
The company’s figures also represent a business in need of a major restructure – quarterly advertising revenue for fourth quarter of 2010 fell 23% to $US331.6 million. Overall revenue fell 26% to $US596 million.
However, it still holds on to one of the oldest brands in web history and a large number of unique visitors who visit the AOL home page. In Armstrong’s internal memo to employees, he noted this and bragged that together with the Huffington Post, the company will have 117 million unique visitors a month and 270 million worldwide.
The Huffington Post was founded in 2005 as one of the first political blogs of its kind. It has evolved into a news and commentary site with one of the most recognisable brands on the internet and over 25 million unique visitors a month.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
