The £20 billion Opportunity in UK Recruitment Advertising

At workhound.co.uk, we like data -- and the Internet Advertising Bureau (IAB) provides great data for determining emerging opportunities in the online advertising space. The IAB/PWC 2007 data for the UK is fascinating. Some highlights:

* 38% Year on Year Growth in UK online advertising spend
* £2.8 billion spent online - now larger than press classifieds and regional newspapers.
* £720 million spent on online recruitment advertising (single largest category - more than 2x automotive)

Enhance Media, another great resource for industry data, suggests that it won’t be until 2009 that the internet will top all competitors (regional, national, and trade press). But they are only looking at the £287 million spent on online recruitment classifieds - less than half the online recruitment spend. Shrewd online advertisers only care about the ROI of their ad purchases. To them, the only distinction between online classified, display, or search advertising is ROI. Hence, it was in early ‘08 that online became king.

But, this only tells part of the story. Online publishers have much higher gross margins, operating margins, and trade at much higher P/Es than traditional publishers. Whereas a national newspaper organization might have a 6-8% operating margin and trade at a P/E of 10-15 which can lead to a chart like this:

Chart

An online publisher is likely to have operating margins in the 30-40% and trade at a P/E of 30-40. This means that when the market looks at the present value of the future cash flows of these two types of entities they strongly favor the latter.

Great, but how does one become a billionaire. Whereas for a traditional publisher £100 spent on advertising might turn into £80 worth of market capitalization, for an online publisher £100 spent on advertising can turn into £1600. For the UK, this means that the £720 million spent on online recruitment advertising creates nearly £10 billion in wealth and, by 2012, it will create over £20 billion in market value (or about 30 times the value of Trinity Mirror - Britain’s biggest newspaper group). The only question is how many billionaires (1-20) will it create in the process.