How much is Medium worth?
Last week, I made a post on Reddit’s IPO.
After that, I considered covering another social media platform.
And what better option than Medium itself?
Okay, okay, Medium isn’t technically a social media platform, it’s a publishing platform. But close enough.
Medium isn’t a public company, so I’ll be covering its valuation in this post. It’s raised $176 million in funding since its founding in 2012, most recently at a $600 million valuation. But this $600 million valuation was completed in 2016, so it’s almost 8 years out of date.
Hence, I thought it’ll be an interesting thought exercise to value Medium in 2024, imagining that it conducted an IPO right now.
Disclaimer: This is not financial advice. Since Medium isn’t a public company, it’s not possible for us laypeople to directly invest in it. But just as a formality- this post is purely meant for entertainment purposes, and I am not evaluating whether Medium will be a good/bad investment if it actually does conduct an IPO soon.
Business Overview
To recap quickly: Medium is an online social journalism platform, with content from reputable organisations, professional writers, and freelance hobbyists, all in the same place. As founder Evan Williams described it, its goal was to be a “new place on the Internet where people share ideas and stories that are longer than 140 characters and not just for friends.”
One of Medium’s core selling points is to build a platform that discourages hype and clickbait, and promotes quality content. Its writers are paid based on an internal algorithm tracking reading time and engagement, encouraging writers to produce fewer, higher-quality pieces.
These goals have paid off so far. The company now boasts a monthly active user count of 85–100 million users, and 1.38 million posts are added to Medium monthly.
Medium makes money mostly through its membership program. Medium has a freemium model, where users can access three subscriber-paywalled articles for free each month. Past that, users will need a Medium subscription to continue reading, which costs $5/month or $50/year.
Medium then shares a significant chunk of this fee back with writers, based on the internal algorithm mentioned above. Some estimates calculate that Medium pays writers about $15-$30 per 1000 views.
However, it’s important to note that Medium doesn’t pay by views, but by read time, so this figure can vary widely across the platform. Medium has shared $15 million with its writers in 2022, and over $100 million since it started the payment system in 2017.
Medium previously also used to promoted stories and sponsored content, where writers and businesses paid Medium to promote their articles in users’ feeds, generating a healthy cash flow for Medium on the side. However, in the spirit of turning away from ad-dominated writing, Medium has shifted away from this in recent years (thanks to DC Palter for pointing this out)!
Calculations
In a recent Techcrunch interview, Medium CEO Tony Stubblebine revealed that Medium is expecting to hit 1 million members sometime in the first half of this year. Let’s assume that 70% of members are on the $50/year plan, and 30% are on the $5/month plan (equivalent to $60/year). That’s $53 million of sweet, sweet recurring revenue a year.
How should we go about valuing this?
For large companies in public stock markets, the most common valuation ratio is the price/earnings ratio. This is calculated by dividing the market capitalisation of the company by its total earnings (or, on a per share basis, the stock price divided by the earnings per share).
In the aforementioned Techcrunch interview, Stubblebine also revealed that he expected Medium to turn profitable this year. However, as a still fast-growing startup that has yet to achieve sustainable profitability, the convention is to value Medium on its sales instead (price/sales ratio, or P/S ratio).
Let’s first take a look at Medium’s peers.
There’s no other major social publishing platforms per se, so we’ll have to compare Medium to other social media platforms. As of writing, here are the P/S ratios for a few major social media platforms:
- Meta: 9.8x
- Reddit: 9.3x
- Pinterest: 7.6x
Okay, so the industry average is about 7.5–10. But we also need to factor in Medium’s unique growth potential and profitability. Surely, as a smaller, more nimble company, Medium should have a more exciting growth story, right?
The harsh reality is, no.
Though Medium desperately wants to be perceived as a fast-growing, exciting startup, it’s important to note that it’s a 12 year old company this year.
Its growth isn’t particularly exciting either. Say it achieves the 1 million subscriber mark sometime over the next few months. From 2022 to 2024, the subscriber count will have grown from 682,000 to 1,000,000 in 2 years, at a 21.1% CAGR.
But from 2021 to 2022, Medium’s subscriber count actually dropped by 10%. From 2021 to 2024, Medium’s subscriber count only rose at a much more paltry 11.3% CAGR, from 725,000 to 1,000,000 in 3 years.
These growth rates actually seem low in comparison to other social media platforms. Facebook, in example, has experienced 20–30% revenue growth over the past decade or so. Pinterest’s growth has hovered about 15–20% for the past five years, albeit with significant fluctuations.
However, for the sake of simplicity and optimism, let’s say that Medium is actually able to pull a similar valuation to other social media companies, simply due to the promise of future growth.
At a $53 million annual revenue, and a P/S ratio of 9.5x, that’s a $504 million valuation.
Oof. That’s actually lower than its 2016 valuation of $600 million. Perhaps this explains why Medium hasn’t raised any money since that time. (Okay, there was a funding round in 2021, but that was at an undisclosed valuation and funded by Andreessen Horowitz, a VC firm with heavy investments in Medium and other companies. Andreessen Horowitz’s funding decision was heavily tied with Medium buying out one of its portfolio companies, so it’s fair to say that this valuation round wasn’t that accurate for Medium’s overall valuation.)
This isn’t to say that Medium is a bad platform. It is a great platform, providing for a vibrant corner of the internet which actually focuses on authentic quality and human engagement.
But it’s also hard to justify all the funding that has gone into it over the years. For the most part, Medium has largely failed to live up to the lofty ambition and potential that investors saw in it.
Not raising its valuation substantially over seven years is a huge blow for a startup that purports to be fast-moving and nimble.
Medium still has much it can do to fix this situation. It has a huge user base of 85–100 million monthly active users. If it can even convert just above 5% of those users to members, its membership count will hit 5 million. This would quickly increase its revenue by $212 million (assuming the same 70:30 spread between the yearly and monthly plan). At a P/S ratio of 9.5x, it could increase its value by $2.01 billion.
Of course, that’s much easier said than done. But as long as Medium commits to continually increasing the value proposition it shows to members, membership will continue to grow.
The earlier 10% drop in membership count was attributed to lower engagement due to algorithms not showing people content they really wanted to see. As long as Medium keeps focused on fine-tuning its algorithm and user engagement, it will be much more immune to such drops in the future.
If Medium truly delivers on user engagement long-term, a 5 million membership count may be closer than you think.
What do you think about Medium’s valuation? Do you think it’s possible for Medium to get 5 million subscribers anytime soon? Let’s start a discussion in the comments!
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