Deal Radar 2008: Digg – Packaging news

Digg is a social news book marking site containing user generated content. Ranging from science and technology to politics and entertainment, it covers a diverse spectrum of news posted and rated by users. The site was started in 2004 by Kevin Rose and Jay Adelson.

This site received its funding from two investors – Greylock Partners and the Omidyar Network – in two phases – $2.8 million in October 2005 and around $8.5 million in December 2006.

Digg has an Alexa rank of 146 and acc. to Quantcast, has about 24 Million global unique visitors.

Its popularity is on the rise mostly among the age group of 18 to 35. Reddit, Netscape, Newsvine are among others who offer a rather feeble competition to Digg in terms of people count in the social news segment. There are, however, critics of Digg who say that the service has too many ways that it gets manipulated.

Digg has been in news for renewed rumors of a sale. Allen & Co., a boutique investment bank specializing in media deals is said to have been hired to represent the company. Valuations sought by the company is said to be around $300 million. Given its over $30 million annual ad contract for the next 3 years with Microsoft, if we value the Company by applying a 10X revenue multiple, then $300 million is a justified expectation. However we may see valuations on the lower side given that social networking sites are not generating adequate ad revenue for the networks representing them.

MSN, IAC, Yahoo, Google, News Corp could all be appropriate acquirers. However, at least for a while, Microsoft and Yahoo are unlikely to acquire anything until they sort out their own deal. News Corp is also busy digesting Dow Jones / WSJ. IAC is busy breaking itself up. Google is busy trying to thwart the Microsoft-Yahoo marriage. The remaining players are in News Media – Gannett, McClatchy, NY Times, and others.

Unfortunately, timing is not great for Digg to get itself sold right now. Later in 2008, however, this is a deal to keep an eye on.

This segment is a part in the series : Deal Radar 2008