AOL Buys Huffington Post in Major Bid for Web Content 1

Arianna Huffington

AOL, the once dominant Internet portal, is buying The Huffington Post in a bid to reverse its fortunes as its dial up audience slowing gets swallowed up by broadband Internet service. It’s a big bet on content to save the company.

AOL is paying $315 million for the Web site, which has carved out a huge presence on the net since it was started in 2005 with a million dollar investment.

Of that amount, $300 million will be in cash, the rest in stock, according to The New York Times, which broke the story Sunday night.

The companies were expected to announce the deal Monday morning, according to The Times.
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With about 25 million monthly visitors, the Web site is being sold at a hefty premium of $12 per visitor. Profits, if any, are unknown, because the site is privately held.

Using the same metric, TheImproper would be worth $10 million.

In 2007, technology analyst Henry Blodget valued the Web site at $60 million, assuming it would be profitable in 2008, which did not happen.

‘Considering the company’s strong momentum, sophisticated backers, strong cash position, and the estimated financial performance, a multiple of 10x-20x 2008E revenue seems reasonable ($40 million-$80 million). Thus the ballpark estimate of $60 million,” he wrote.

In 2008, the company raised $25 million in financing and was valued at that time at $100 million.

But Huffington Post executives told The Times that the Web site will generate $60 million this year, compared with $31 million last year. By that measure, AOL paid 10 times trailing revenue.

The deal represents a big bet on content by AOL chief executive Tim Armstrong, who reportedly views the acquisition as a cornerstone to revive AOL’s decade-long slide.

Problem is The Huffington Post is largely a content aggregation site, lifting snippets of content from other sites and linking to them.

The content it generates on its own is provided largely by unpaid contributors.

Whether they will be willing to continue working without being paid remains to be seen, now that AOL, with relatively deeper pockets, has taken over the site.

While contributors are left to wonder whether they will be paid for their work, founder Arianna Huffington has carved out a big role for herself.

She will take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group, according to the Times.

That includes not only AOL’s national, local and financial news operations, but also other media enterprises like MapQuest and Moviefone, The Times reported.

“So thrilled to announce that today @HuffingtonPost joins forces with @AOL …” Huffington tweeted, after The Times broke the story.

“Same HuffPost team, same goal … but now at lightning speed,” she added.

“This is a statement that the company is making investments, and in this case a bold investment, that fits right into our strategy,” Armstrong said in an interview Sunday. “I think this is going to be a situation where 1 plus 1 equals 11.”