1x Yellow Pages = 3.2x Trade Me

The big business news this week is the sale of Telecom’s Yellow Pages directories business for $2.24 billion.

That’s a big number!

Some simple maths: 1x Yellow Pages = 3.2x Trade Me.

The buyers are a consortium of CCMP Capital (a private equity firm) and the investment arm of the Ontario Teachers Pension Plan.

The multiples involved are not outrageous. According to ValueCruncher their earnings last year were $250m and are expected to be $300m this year. So the sale price is just under 9x current earnings and 6.4x projected earnings. The equivalent numbers for Trade Me at the time of the sale to Fairfax were 27x current earnings and 15.5x projected earnings.

People have been critical of the sale. According to Telecom they are getting out now because they believe the future of directories is online. I think that’s right. The question is whether that’s online with Yellow Pages or with Google. In either case it doesn’t say much for Telecom’s confidence in their own ability to convert online opportunities (Ferrit? YahooXtra?)

I think Yellow Pages itself is now in a strong position. It’s their game to lose. They have a very strong brand which is very well known and well trusted. And they have an existing billing relationship with more-or-less every business in the country, all of whom expect to pay to appear in the directory (and presumably see some return which is in proportion to that cost?)

They also have a website which is rubbish. They could easily make it 10x better. Applying some of the improvements recently made to the White Pages site would be a good start.

If they get this right it will be pretty difficult for anybody (even a Google) to displace them. And it will allow the teachers of Ontario to be that much more comfortable in their retirement.

It will be interesting to watch and see what happens.

What do you think?

10 thoughts on “1x Yellow Pages = 3.2x Trade Me”

  1. The Yellow Pages Group is in a classic situation of an old media company trying to deal with the internet. The problem they face is that they have to reduce short term profits to real the rewards later on. Take for example a search for ‘Builders’ in ‘Wellington’. The results show this:

    http://yellowpages.co.nz/Pages/Search/Results/0,2878,a6001_m0,00.html?category=builders&businessName=&location=wellington&findit.value.x=0&findit.value.y=0

    Is there a reason why Signature Homes comes up first? Why only some listings have an email address even though the hosted site has an email address on it? It comes down to paying to get your listing to the top and paying for ‘extra’ features such as listing your email address.

    This is a classic old school way of looking at things. In the past people only had the paper Yellow Pages to look at and the big ads made a difference in how we looked at it. On the web however we have plenty of choice and the site that delivers the most relevant results the fastest will win in the end. What that means is providing the user (not the advertiser) with the most relevant complete results that they can use to find a business.

    Once a site has this then and only then can they look at monetizing on top of the core listings. In Yellow Pages case I think they should put the paid for ads on the side. If signature homes wants extra visibility then sell them a small display banner next to the results. There are heaps of ways to make money of a high traffic directory listings site.

    I can think of another example where an old media company crippled their website and new player came and took the market by just delivering what the user wanted (One guess…)

    You are right. It is their game to loose.

    Glen

  2. Hey! We got the $2bn of economic growth without having to upgrade broadband and run fibre everywhere!!

  3. Pingback: Rod Drury > $1
  4. Valuecruncher’s estimates of $250 million (2006) and $300 million (2007) of revenue for Yellow Pages were based on limited publicly available information in November 2006. Following the announcement of the transaction it has been revealed that Yellow Pages will have revenues of $280 million and EBITDA of ~$160 million for the year ending 30 June 2007 (http://www.stuff.co.nz/4006129a13.html). The sale price of $2.24 billion equates to 8 times projected revenues and 14 times projected EBITDA.

  5. I actually think yellow pages online future is far from certain and that Telecom is selling at the right time. The future for business directories is undoubtedly online but why do people presume yellow pages is the favourite to dominate it? Personally I would pick TradeMe.

    Why? Traditional business directories are a classic natural monopoly, they get more efficient the larger they get thus creating large barriers to entry for anyone else. The internet destroys some of these barriers, no need to design, print and deliver a book to every house in the country for one. No teams of salespeople to sell the ads or type them out and so on.

    Online this task is trivial, I designed myself a directory site in a week albeit a basic one. It was of course a failure because what really matters online is users and who has them in NZ? TradeMe.

    They could easily add a tab to their websites with “Directory” and provide their 1m users a free service to add details about their own businesses with far more information for each than yellow pages provides. You could even have a rating system like http://www.nocowboys.co.nz and of course charge for premium listings/ads.

    At the very least online their will be (in fact already is)competition which traditionally Yellow Pages has not had. Yellow Pages has a high error rates, charges and lengthy time lags to make changes/corrections all signs of a big fat slow monopoly. In short they are a sitting duck for an established internet player to attack.

  6. It will be interesting to see if consumers continue to want listings, or become more interested in going straight to transaction. Tradesmen represent the bread and butter of Yellow Pages – but why look up a phone number online, when the likes of http://www.builderscrack.co.nz can allow you to transact with them directly?

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