After years of declining revenue and being derided as a “content farm,” Leaf Group Ltd. returned to budding financial gains in 2018.
The Santa Monica-headquartered internet media company grew revenue by 20 percent to $155 million last year and showed positive operating income for the first time since 2014, albeit a modest $1.8 million, the company reported last week.
Company executives attributed the turnaround to the recent success of the company’s two somewhat risky business endeavors: running online marketplaces for arts and crafts sales, and selling advertisements on Leaf’s health and home-design websites.
“We have effectively turned around the business over the past four years and now have a scalable platform that we can grow cost effectively,” Leaf Chief Financial Officer Jantoon Reigersman said.
Under Chief Executive Sean Moriarty, who joined Leaf in 2014, the company started selling arts and crafts on its Saatchi Art and Society6 websites, and advertising on its websites including eHow, LiveStrong, Hunker and recent acquisition Well + Good. In a note to shareholders March 4, Leaf executives said those businesses have been successful in drawing repeat customers and turning a profit.
The arts and crafts marketplace is currently the more lucrative of the two segments, generating $94 million of the company’s $155 million 2018 revenue. But the digital fine art market may have limited growth potential.
In its March 4 note, the company acknowledged that the trend toward online shopping hasn’t yet extended to the high-end art collecting set. Just 8 percent of global art sales were executed online in 2018, the company said.
Leaf’s home and health website ad sales made $61 million in revenue last year. But the business remains a gamble, analysts said, particularly at a time when two companies — Alphabet Inc. owned Google and Facebook Inc. — control the majority of the market. According to a report last month by eMarketer Inc., the Silicon Valley behemoths account for 59 percent of the U.S. digital ad market.
Many ad-supported media companies are struggling to stay afloat, industry experts say.
“I don’t think ad-supported websites like Leaf’s are currently sustainable,” said Mario Carrasco, of the Burbank advertising consultancy Think Now. But he added that Leaf’s current ad-supported content appears more financially promising than previous digital offerings.
Leaf Group started in 2005 as Demand Media Inc., co-founded by former MySpace Inc. Chairman Richard Rosenblatt.
The company ran websites that aggregated content from other internet sources, tweaking headlines and tag words so the websites would appear near the top of Google web searches.
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