The Biz View from Peking U | Forbes’ new Hong Kong owners should call Charlie Munger ASAP

A Hong Kong investment group, including Tak Cheung Yam of Integrated Asset Management and Wayne Hsieh of Asustek Computer, has reportedly purchased Forbes for US$475 million (HK$3.68 billion). One of America’s leading capitalist publications is now a Hong Kong company. But before the new owners go chasing any growth plans, they should call Warren Buffett’s partner Charlie Munger. Because he is doing something quite surprising in American publishing right now. He is making lots of money.

The high price paid for the company, on the order of 25x 2012 earnings, means big growth is envisioned. And, indeed, the initial announcement by Forbes Media has mentioned new projects in online media – as well as potential new ventures in real estate, education, financial services and technology.

But the new owners would be well advised to take a moment and do a quick comparison of Forbes Media with Charlie Munger’s publishing company, the Daily Journal Corporation. It is pretty sobering.

Founded in 1917, Forbes Media is steeped in American history and capitalism. They’ve got a big name. They have a website and a print magazine. They can claim hundreds of thousands of subscribers and millions of online readers. And the company does have some brand power today, especially in international markets.

However, the financial decline of the company over the past fifteen years has been fairly spectacular. According to the pitch book obtained by Ken Doctor, a media analyst for Outsell Inc., Forbes Media has had revenues in the US$120-140M range for the past several years. And EBITDA has been in the US$10-15M range.

To a financial buyer, Forbes is likely worth US$150-200M. And, unfortunately, the majority of Forbes’ revenue is from advertising (about US$100M). Advertising-based publishing is a very difficult business, and getting more so.