Future shock: The path from a tiny computer games publisher to an ecommerce giant

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Before Zillah Byng-Thorne took over as chief executive of Future PLC (LON:FUTR) on April 1, 2014, the company had an interesting but distinctly inconsistent history.


Under the former finance chief-turned interim CEO of AutoTrader parent Trader Media Group, who was Zillah Byng-Maddick at the time, the publisher has seen its shares return towards the dizzy heights they enjoyed in the Dotcom boom.


READ: Future falls after agreeing takeover of GoCompare owner GoCo Group


With the acquisition of GoCompare and the stated desire to provide “intent-driven content”, ie the websites that people read as part of their online research in the minutes, days or weeks before going to make an online purchase, looking back at Byng-Thorne’s history is illustrative, with AutoTrader perhaps one of the purest forms of ‘intent-driven content’, as people literally go there to find a car to buy.


The group has its critics and naysayers, including the ominously named ShadowFall hedge fund in February this year, and Future is still one of the 20 most-shorted stocks in the UK equity market, according to shorttracker.co.uk.


In scathing 69-page report from ShadowFall’s Matthew ‘the Dark Destroyer’ Earl, Future’s portfolio of titles was blasted as “little more than a collection of generally low quality, often distinct and shrinking assets”, with Byng-Thorne using acquisitions to mask a rate of organic revenue growth that was much weaker than the figure shown in its accounts.


He said Future was acquiring assets at a price of less than two times sales, while the group itself was trading for nearer seven times its revenues.


“There are some out there who are clearly habitually wary of serial acquirers,” says Russ Mould at AJ Bell, who added that the plan to use stock to part-fund the GoCo deal “may also be a tacit admission that the stock is on a punchy valuation, making it a good currency to spend but potentially a trickier one to receive”.


Before GoCo, however, he said Future’s finances did not look stretched, with only GBP85mln of debt and shareholders’ funds of GBP381mln, nor does the company’s 15% operating margin look unusually high relative to other media sector names like Reach, Pearson and RELX.


Some observers also felt it was less clear what it offers Future investors.


“If investors in Future wanted exposure to GoCo’s AutoSave business they could have bought the shares in the market yesterday, and at a significantly lower price. We think Future has its work cut out to prove the deal adds up,” said Nicholas Hyett at Hargreaves Lansdown.


But one significant result of the shift to digital for publishers that Future has benefitted from is ecommerce, with the company generating a major portion of its revenues from providing price comparison and purchase options since 2016.


With other work-from-home and shop-from-home companies having thrived during 2020, why would this year not also benefit one of the main companies that people use to decide which of their online purchases to make?


As analysts at Investec said, “adding GoCo would enable a customer to read an article about homes, then click on an eCommerce tab which then takes the customer to GoCo to purchase home insurance.


“This will greatly increase the eyeballs on GoCo’s content and enable a new vertical for monetisation for Future.”


The company sees this logic applying across both the price comparison verticals and GoCo’s AutoSave, which operates under the WeFlip and Look After My Bills brands to switch subscribers automatically to the cheapest deal when their contracts are up, while the new addition’s Rewards business another feature that Future is looking to leverage.


Timeline: From GBP10k bank loan to FTSE fame


Passionate young computer gaming journalist Chris Anderson, after just a year as editor of two early UK games magazines, founded Future Publishing in 1985 with a GBP10,000 bank loan in the village of Somerton, not far from Glastonbury in Somerset, to publish a single magazine, Amstrad Action.


After struggling with very low sales, Anderson found adding a ‘free’ computer cassette on the cover of the mag helped sales take off – reputedly being the first publisher to ever do this.


As new titles were launched focused on a single computer format or console rather than the whole of the market, including Amiga Format, Commodore Format, ST Format, SegaPower and Nintendo-focused Total!, Future moved to the nearby city of Bath, where it remains today.


With this came the first diversification out of video gaming, with Classic CD magazine, where Anderson repeated the trick with a covermounted a classical music disc on every issue, and Diesel Car, where the trick was not repeated.


Expansion into America came in 1994 with the acquisition of GP Publications, bringing titles CD-ROM Today, Computer Entertainment News, Game Players and PC Entertainment.


In October that same year, as well as selling and shuttering several gaming magazine such as Sega Zone and Game Zone amid declining circulations (with others closing in the following years).


Future itself was snapped up and had its first taste of the public markets as Pearson, then the owner of the Financial Times, Madame Tussauds and Thames Television, gobbled up the niche magazine publisher for just under GBP53mln to add what was a stable of 34 titles at the time. Pearson paid around 35 times earnings, which according to newspaper reports at the time looked a high price given that many of the titles had circulation issues.


Only four years later, with Future contributing annual sales of GBP70mln and including new titles such as the Official PlayStation Magazine, Total Film and Total Guitar, Pearson sold its two consumer mag businesses back to Anderson and chief executive Greg Ingham in a GBP142mln buyout backed by venture capitalists Apax Partners.


In 1999 the company was floated on the LSE and was carried on the dotcom media frenzy to a value of almost GBP1bn even though it was loss-making.


In 2001, after the bubble burst, founder Anderson left Future to work full-time on TED talks, which had been acquired by his Sapling Foundation organisation, but by 2002 the company was profitable again, for a short while at least.


Between the departure of Ingham in 2005 (after an ill-fated GBP30mln purchase of 38 mostly loss-making magazines from the collapsed Highbury House) and Byng-Thorn’s arrival, the group churned through a succession of CEOs as it struggled for direction, launching lots of new titles (including the still-successful TechRadar in 2008), shuttering or disposing of lots of others, building up its events arm, and stepped up the process of closing down print titles in favour of website versions.


As soon as she got her feet under the table Byng-Thorn kicked off with a big clearout, selling a swathe of non-core titles (such as Procycling, Triathlon Plus and The Knitter), which led to the headcount being slashed from 980 to 577, the property portfolio rationalised and the balance sheet strengthened, Byng-Thorn then set out to acquire the sort of titles where she saw more potential and concentrating on five areas: games and film, technology, music, photography and creative.


Acquisitions, especially in the US, have expanded the portfolio in a big way in recent years, such as 2016’s purchase of events and websites group Blaze Publishing, adding established events such as The London Acoustic Show, The London Bass Guitar Show and The London Drum Show, plus shooting and music magazines including Airgun Shooter, Bow International, Clay Shooting, Gun Trade News, Sporting Rifle, Acoustic Magazine, Bass Guitar Magazine, Computer Music, Drummer, MusicRadar.com and Total Guitar.


Since 2017 investors have really started to take notice, with the shares doubling that year, helped by three acquisitions, including the rescue of its own rock music titles Metal Hammer, Classic Rock and Prog (https://www.loudersound.com/news/classic-rock-metal-hammer-and-prog-rescued-as-former-owner-future-steps-in), a GBP32mln portfolio of consumer titles from smaller rival Centaur, as well as the previous year’s purchase of ‘bookazines’ publisher Imagine Publishing. Revenue rose 43% to GBP84.4mln and the group just broke even at the statutory level, from a GBP14.9mln pre-tax loss the year before. (https://techcrunch.com/2016/06/23/future-buys-imagine/)


The shares came close to doubling again the next year as growth was accelerated with four acquisitions, including the US$132mln paid for US publisher Purch, adding important titles such as Tom’s Guide, Tom’s Hardware, TopTenReviews, ShopSavvy, Live Science, and Space.com. Annual turnover rose 48% to GBP124.6mln with PBT of GBP4.4mln and free cash flows were GBP17.4mln.


In 2019, when the shares tripled on the back of continued surpassing of expectations, raking in e-commerce revenues and enabling dividends to restart. Acquisitions in 2019 included US-based Mobile Nations, publisher of publications include Android Central, iMore, Windows Central and Thrifter, for US$60mln mostly in cash, potentially doubling based on performance. Annual revenues were up 70% to GBP221.5mln and statutory PBT rising to GBP12.7mln.


This year, which has included integrating last year’s Barcroft deal that brought a new revenue stream from video production, the GBP140mln acquisition of TI Media, publisher of Marie Claire, TV Times, Wallpaper, Woman’s Weekly, Woman’s own and Horse & Hound, and with a new lead-generation technology developed, which it calls Falcon.


Claiming an audience reach of 394m across all its channels, with content said to reaches one in three adults in the UK and US, revenue was up 53% to GBP339.6mln, statutory PBT was up fourfold to GBP52mln and free cash flows up 89% to GBP96mln.

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