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The Parcast Number

Follow the money (?)

We now have a figure for Spotify’s acquisition of Parcast, reported earlier in the week, and that figure is “more than $100m in cash and earn-outs,” according to the Financial Times citing “one person close to the negotiation.”

Here’s what is perhaps the most important line from the report: “The price equates to an enormous multiple on Parcast’s limited revenues, this person added.

You can refresh your memory of this deal from Nick’s report earlier this week here, but just in brief: Parcast is a California-based production outfit founded in 2016, currently with 18 shows under its belt and plans for 20 more this year. It focuses on big numbers areas like true crime, hence its best-known titles “Serial Killers” and “Unsolved Murders”.

For those keeping count, this looks to have made another big dent in Spotify’s approximately $500m shopping budget for podcast companies — if you believe the Parcast acquisition sum, that is. Anchor and Gimlet combined set Spotify back $340, and this apparent $100m take leaves around $60m. So, I suppose, if you’ve got something you want less than $60m for, you could still be in with a shot.

Nick’s Note: But that, of course, all depends if you believe the number. I didn’t cite the Financial Times’ piece in yesterday’s Insider because I wanted to follow up on it first, and the sense I’m getting is that the number is a little soft — which is to say, there seems to be more than the average level of doubt around it from the sources I’ve been keeping. (The expressed belief is that the sum is significantly lower than reported.) Which isn’t necessarily to say that it isn’t true… it’s just that I’d keep an arm’s length from this data point at this point in time. We may know for sure the next time Spotify releases a financial statement; I reckon if the acquisition was $100m big, it would be cited. If it isn’t cited, well…

Another thing: some readers expressed confusion (and in some cases, frustration) over what in the world could contribute to the “enormous multiples on Parcast’s limited revenues.” It’s worth remembering that finance isn’t a hard science so much as it is a soft art. Two contributory factors I’d keep in mind are (a) how Spotify perceives future value — as an extrapolation of current conditions — and (b) an accounting concept called “Goodwill,” i.e. the excess an acquiring company is willing to pay above fair market value, which is often defined by intangible things like “a company’s good reputation, a solid (loyal) customer or client base, brand identity and recognition, an especially talented workforce, and proprietary technology.” (I’ll be basic and cite the Corporate Finance Institute on this one.)

Also: acquisitions almost always say more about the buyer than the bought…