LBG Media (LBG) is better known by the name of its first creation: LADbible. It has been 10 years since the company was dreamt up by a Leeds University student, however, and laddishness has matured into something more grown-up, defying fears that the business was a fleeting success story in the blizzard of the internet.
Corporate life has ushered in new problems, though. Since listing on Aim in December 2021, LBG has lost over 70 per cent of its value, and we recently downgraded the group to a ‘sell’ over fears that it is expanding too fast and that its youthful audience will lose interest. There is an alternative take, however. Abby Glennie, deputy head of smaller companies at Abrdn, has sung the praises of the media group, which claims to get more views than the BBC, Vice and the MailOnline combined.
Digital media with a difference
First things first: what actually is LBG? The company describes itself as a “digital youth publisher” and, in some ways, it resembles a magazine or newspaper group. It operates several websites, including LADbible, UNILAD, and Tyla, employs journalists, and makes some money by selling ad space directly to companies. That’s where most of the similarities end, however.
For starters, LBG doesn’t have a ‘readership’ as such: video is just as important to the group as the written word. Moreover, about a third of its content is generated by users themselves, who submit their own videos, photos and stories in the hope of receiving a £100 prize. (If you ever watched You’ve Been Framed! on a Saturday evening, you’ll get the gist.)
LBG’s revenue streams also differ from those of a traditional publisher. While it does sell ad space, it also gets paid to create branded content for big names, which it then shares with its audience. In the past, it has worked on a recruitment campaign for the British Army and teamed up with the NHS to encourage more young people to apply for jobs in nursing.
And then there’s social media. While the group obviously has websites, the main way it distributes its content is through social media platforms. As such, about half of its turnover is ‘indirect’, generated through revenue sharing arrangements with companies such as Facebook and Youtube, where advertising appears alongside its videos.
Impressive viewing figures
It is tempting to dismiss LBG on the grounds that its content lacks substance and, sometimes, good taste. Posts vacillate between the silly and the macabre, with funny animal videos sitting alongside coverage of celebrity deaths or gruesome accidents.
However, LBG’s audience figures are genuinely staggering. The group reaches two-thirds of 18 to 35 year-olds in the UK, and its websites have roughly 68mn unique monthly users. (For context, the Financial Times reaches 26mn readers per month.) Its content was viewed over 35bn times in the first half of 2022, and in 2021 it enjoyed 9mn ‘engagements’ – such as likes, shares and comments – every day.
Somehow, the company is still gaining popularity: its global audience jumped by 14 per cent in the first six months of 2022 and viewing figures are up by 38 per cent.
“What LBG essentially has is a huge niche,” said Glennie. “It’s hard for advertisers and corporates at the moment to advertise in a way that actually captures the people they are trying to capture. And that is what they get uniquely through LBG media.
“As long as you believe in them to keep creating engaging and relevant content, they have already done a lot of the hard work in terms of being the known brand for that demographic. We really like that because we think that’s quite a difficult competitive moat to break down. It’s quite hard for a newcomer to the market to become as relevant..”
Turning people into profit
The big question for LBG is how to monetise its enormous user base. So far, fabulous viewing figures have not translated into fabulous financials, and the group slipped into a statutory loss in the first half of 2022 after a recruitment drive.
LBG is not the first to be tripped up by this: in July, advertising group S4 Capital (SFOR) was forced to issue a profit warning after hiring too many people for its content arm, and has since reined in recruitment. Nevertheless, it has contributed to our concerns about whether LBG’s sales growth can match its capital commitments.
Glennie is still optimistic, however. For starters, she said the company has adopted a “more disciplined” approach to headcount. (It was reported that LADbible sacked 10 per cent of staff in October.) More importantly, however, Glennie argued that the group is laying the foundations for future growth.
The group has over 30mn followers on TikTok and is one of the most viewed publishers of all time on Instagram, but it currently makes no money from either of these platforms. This is because – unlike Facebook and Youtube – Instagram and TikTok do not allow publishers to monetise their content. In other words, they are not able to embed adverts in their videos.
Change could be around the corner, however. In 2021, LBG was invited by Instagram to take part in “alpha testing” for in-video adverts, and management believes “these capabilities will be introduced across all social media platforms as the platforms mature, providing significant upside opportunities”.
Glennie agrees. “They have a huge audience on Instagram but they earn no revenue from it at the moment. When they do turn on monetisation, they are not starting from zero. It’s an investment they’re making up front, in a way; they are committing to that now for the future.”
Other developments in Silicon Valley are also encouraging. In its battle to beat TikTok, Facebook is embracing short-form video, which is good news for LBG. Until recently, LADBible created three-minute videos for Facebook which could only be monetised after 60 seconds. In other words, someone would have to watch a video for a whole minute for an advert to play. Now, however, the group is creating one minute videos with an ad built in.
“That’s a much more attractive yield for LADbible – and it’s cheaper to create,” said Glennie.
Advertising angst
It’s no secret, however, that tech giants have not had a good year. At the end of October, more than $89bn ($73bn) was wiped from Meta’s market capitalisation after a dip in quarterly advertising sales, and the slowdown is being exacerbated by Apple’s privacy policy changes and a clamp down on third-party cookies.
What does that mean for LBG?
“We’re starting to see the risk and weakness of the LBG investment case,” said Glennie. “In general, we like businesses that have pricing power. Unfortunately, the nature of this industry means they don’t really. Advertising is essentially supply and demand driven. It’s all algorithmic, and creates a pricing. In the first half, that pricing really dropped for Facebook.”
There’s also a lack of revenue visibility. While branded content is based on long-term relationships with clients, indirect revenues from social media are far more fickle. “You can’t really see far ahead – particularly around the pricing element. So it’s not the highest quality in terms of revenue visibility,” said Glennie.
This does not detract from the power of LBG’s young audience, however – a demographic that management said has “proven to be more receptive to online advertising”. Moreover, LBG’s plans to move beyond the UK and target young adults in the United States, Australia and New Zealand should help to diversify its client advertising base.
“They are having success at driving audiences, getting on other platforms and then expanding internationally,” said Glennie. “They have a lot of self-help levers in terms of driving the growth – and you need that to offset weaker periods in pricing.”
Whether these levers will be strong enough to combat intense, short-term pressures remains to be seen. However, with no debt on its balance sheet, international expansion plans, mammoth viewing figures, and a forward price-to-earnings ratio of just 9.2, it might be worth the risk.
