E-commerce driving bright new Future

Magazines without strong subscription models can make money, although there are some caveats – they must have a strong online presence and their readers must keep buying products advertised on their site. 

Media group Future (FUTR) – which has spent the past few years movingaway from the subscription model – released a spectacular set of half-year results, showing strong growth in revenue and operating profits both on an organic basis and including new purchases such as GoCompare. 

The pandemic did have an impact on sales in the six months to 31 March, with the magazine division’s revenue dropping by 15 per cent on a like-for-like basis as newsstand sales tumbled and print advertising fell a quarter. 

But including acquisitions, the division’s sales jumped from £29m to £90m. 

Future’s real focus is turning online eyeballs into revenue, however. This is where media companies have struggled for over a decade, but Future’s focus on e-commerce, where readers are shepherded into spending money with online retailers, looks to be a sustainable model. 

Analysts at Enders said earlier this week that Future showed the rest of the industry how it’s done in 2020, with 58 per cent growth year-on-year in e-commerce sales against 16 per cent growth for digital display ads. 

In the interims, this was up 56 per cent year on year again, and up 116 per cent including the new additions. E-commerce is now the single largest revenue provider, bringing in £85m in the first half, thanks to a 60 per cent increase in transactions. It overtook digital advertising, which had sales of £70m.

Chief executive Zillah Byng-Thorne said this would remain the company’s focus, with new titles coming to send more readers to its new GoCompare and Mozo sites. Mozo is an Australian comparison site bought in February for £17m.

She said the company would be launching “new brands that offer financial advice to the consumer” to channel them towards the e-commerce platforms, to add to Future’s current position as the “number one publisher of home-related content” in the UK through titles like Country Life, Homebuilding & Renovating and Woman & Home. 

Marie Claire UK was a key contributor to the ecommerce boost as well, she said. 

This revenue stream is different from advertising in that the publication is pushing a sale within its editorial content. Future describes this as its “ability to help our customers on their intent to purchase journey”. 

Future books a proportion of the sale if a reader follows their link to the vendor. Peel Hunt analyst Jessica Pok said the company should be able to replicate its “good success injecting ecommerce” into Marie Claire UK into the US version. 

There has been little indication of readers pushing back on this ‘sell-sell-sell’ approach. Online users were up a quarter at Marie Claire UK year-on-year, while users at Future’s tech sites were also up. 

PE class

Future’s GoCompare acquisition means it is also in the consumer financial sector, which commands a different set of valuations. Kakaku (JP:2371) in Japan, another price comparison company, trades at 37 times its forecast earnings over the next 12 months, compared to Future’s multiple of 24. Kakaku is a standout however, with Moneysupermarket.com (MONY) trading at 18 times forward earnings. 

Looking to a fellow media company, Daily Mail and General Trust (DMGT) trades at 30 times forward earnings, however, so Future lands almost at the middle. DMGT also has a consumer sales business, through car retailer Cazoo, but is far more reliant on traditional media ad sales than Future. 

DMGT does have one advantage over Future – it pays a dividend, with a forward yield of 2.9 per cent. Future will not hand investors an interim dividend, and its final payout of 1.6p for the 2020 financial year gives it a yield of 0.1 per cent. 

Investor return is still there, however, with a 12-month share price gain of 164 per cent, to 2,636p. Shareholders do have some issues with the company. More than a third voted against a new bonus plan that could hand Byng-Thorne £14m a year. The company said it would not increase the boss’s pay for another two years, after a 21 per cent boost in 2021 to £575,000. 

Future’s transition to heavily monetising readers’ purchases is a strong strategy, given the likelihood of online shopping remaining the norm even once the pandemic restrictions are lifted. There has to be some risk in alienating readers, but the half-year numbers suggest this is not the case so far. Move to buy.

Last IC View: Hold, 1,729p, 25 Nov 2020