How much froth is there in the online ad industry? One market signal comes from a leaked private-placement document for Glam Media, which is trying to raise an eye-popping $200 million (which is very large for a private deal). Allen & Company and Bank of America are raising the round on behalf of Glam. According to the leaked document (thank you, TechCrunch):
Glam Media is the fastest-growing web property in the United States based
on the year over year increase in unique visitors from 782,000 to more than 19.1 million monthly unique visitors in June 2007.
Except that it's not. Glam Media owns a collection of women oriented sites, including its flagship Glam.com. But the bulk of those 19 million visitors comes from the ad network that it runs for other sites like MyYearbook.com, QualityHealth.com, and Kaboodle (which was recently acquired). In other words, Glam Media is trying to tell prospective investors that because it serves up ads on a site, the visitors to those affiliated sites should count towards its own total as a "web property."
Yet, according to comScore, all of Glam Media's sites accounted for only 1.6 million of those 19 million visitors in June. And Glam.com itself only accounted for 654,000 visitors. Some of its lesser sites include Celebrity-Hairstyles.org. The fact is that the bulk of Glam Media's traffic and revenues comes from its ad network, not its web properties. Trying to sell itself as the No. 1 destination on the Web for women is misleading at best.
Hyperbole aside, there is nothing wrong with being an ad network. In fact, they are in great demand. But if investors cannot even trust Glam Media and its bankers to describe the business properly, how can they put any faith in the revenue and cash-flow projections set forth in the private placement? (The numbers go from an estimated $21 million in revenues this year to $150 million next year and $392 million in 2009. Meanwhile, cash flow (EBITDA) is shown going from a loss of $3.7 million this year to $119 million in 2009).
If this deal gets done, it will be as good a sign as any that we are now officially in Bubble 2.0 territory.