This analysis was done by Tyler Knight of Arbor Advisors with data from Nathan Latka’s Interview of Moz CEO Sara Bird in July 2019. 

Moz started in 2004 as an online blog where early SEO (Search Engine Optimization) experts shared ideas. After transitioning from consulting to software the company took on its first funding round in 2007 and had 5000 subscribers by 2009.

In 2013, they released Moz Analytics which is the foundational product suite that has propelled them into the $70M ARR business they are today. In the same year the company shifted the reigns from company founder Rand Fishkin to current CEO, Sara Bird.

At its core, the company exists to win organic search for businesses looking to attract new customers by increasing web traffic and enhancing their user experience.

Moz differentiates its suite of products by integrating SEO tools with inbound marketing capabilities. Nathan Latka sat down with CEO Sara Bird to discuss the business last week:

Moz To Hit $70m in Revenue in 2019, $10m in Free Cash Flow

Moz’s revenue model is pure play SaaS charging customers based on number of seats and the different levels of product features.  The company is growing roughly 15% YoY with $60M ARR in 2018 tracking towards $70M ARR in 2019.

With 15% EBITDA margins generating around $800k per month in cash flow are they sacrificing growth for profitability? We’ll debate later.

Moz has two primary customer cohorts, SMB and enterprise. Both, as expected, have vastly different unit economics, but both are essential to the business.  The SMB customers have high initial churn of about 80% the first three months and only 5% annually after nine months with no support cost.

Customers can also be categorized into qualified or non-qualified. Two thirds of the company’s revenue comes from qualified customers that have an average tenure of 10 years and gross churn of only 5%.  This is very healthy.

The other third are customers that will likely churn quickly and have a small LTV. Some companies don’t even bother with this cohort and refuse their business. Why doesn’t Moz do the same?

Why Bother With Customers Who Only Stick for 14 Months?

It’s simple, they’re spending very little on acquiring them and nothing on maintaining them as customers, but their revenue covers the cost of acquiring both SMB customers and the enterprise clients. Using cheap revenue to acquire new enterprise clients is a recipe for capital efficiency and material EBITDA numbers.

Sure, when sophisticated investors take a look at the revenue by customer analysis they will likely discount the unqualified customer revenue.  But using that revenue to fund the growth of the enterprise cohort allows them to remain profitable while growing.

The average LTV for the SMB cohort is $1,600 and a CAC of $290 that gets paid back in three months.  With an LTV to CAC ratio of roughly 5.5:1 there is certainly an argument to be made for increased spending on customer acquisition in that cohort.

Moz has 600 enterprise customers with lifetime values of $200k. This cohort makes up 70% of total revenue.  Expansion revenue in this cohort comes from offering additional premium features as opposed to expanding the number of seats.

The Company Is Not Growing Like a VC Backed Company Should

Bird mentions that they aren’t actively in acquisition talks or under pressure from early investors to get liquidity.  Sarah, her team, and the investors are in an interesting situation because they could easily continue to have success growing at a moderate rate and generating a steady stream of cash flows. Isn’t that what businesses are supposed to do?

On the other hand, an acquisition by a growth oriented private equity fund would enable the company to initiate roll-up strategies and a much more aggressive customer acquisition plan.  There are also several strategics that would value Moz’s brand name and customer base while being able to cross sell into various customer cohorts.

15% Growth With $30m Raised Not Recipe For IPO, 100x VC Returns

They aren’t going to raise capital again.

Their cash flow funds existing customer acquisition and investors from 2016 will prioritize liquidity over growth at this stage of the investment cycle.

They could continue to run the business as is, but 15% growth at the scale they are at seems a little light given the $30M of VC funding in 2016, large total addressable market, cheap CAC, and position as a category leader in the space.

My guess would be that Moz will undergo a change of control transaction in the next 18 months.

Which Private Equity Firm Will Buy Moz?

At first glance, this seems like a private equity buyout in the making.  Strong brand recognition, great logos, $800k/mo of cash flows, but stagnating growth at %15% YoY.

A strategic deal is possible, but it would be more based on customer acquisition and accretion as opposed to a tech deal. I’d put money on the former; what do you think?

I’ve listed two likely financial and strategic buyers below.

Vista Equity Partners

Plugging Moz’s trusted product suite, customer base, and brand name into Vista’s operational blueprint seems like a very natural fit.  Vista is known for consolidating a space to complete the stack and build up barriers to entry around the one unified suite. That way, they can cross sell to overlapping customers and develop pricing power.

Coming off an incredible return on a tangential asset in Marketo, Vista would likely be eager to put in place a similar strategy with Moz.  In the hold period, Marketo rolled up two complementary assets in Bizible and ToutApp. This, along with Vista’s famed operational playbook allowed the PE giant to buy Marketo in 2016 for $1.8B and sell it for $4.75B a little more than two years later.

Vista also currently holds several assets in the Marketing / Advertising Tech stack that would benefit across the board with Moz under common ownership and/or vice versa. Mediaocean helps optimize and automate advertising workflows from media buying and campaign measuring across every media channel.

Adding an SEO would enhance Mediaocean’s ability to increase traffic and conversion by ensuring the media content lands in the most impressionable way possible. In only two years of Vista ownership the Mediaocean team has done six acquisitions.

Numerator is a Vista owned marketing intelligence platform that is about double the size of Moz at $130M ARR. Moz spent $3.4M on 3rd party data in 2017. Numerator likely has this data which means there could be cost synergies equal to their current spend of 3rd party data.

Additionally, Moz’s product suite would integrate very well into Khoros, Vista’s social media management platform.

Providence Equity

For many of the same reasons given for Vista’s likely interest, Providence is a potential acquirer as well.  Providence would similarly be able to deploy additional capital for customer acquisition and roll ups, while leveraging a portfolio of synergistic assets to increase the value of combined offering.

Moz would complement Double Verify’s offering (marketing measurement), and strengthen the return profile from customers using SnapApp  (content marketing) and Thuzi (social media marketing).

Maybe a Corporate Buyer Like Hubspot Comes In?

Hubspot
Hubspot’s product suite is all over the stack. It has products for CRM, customer support, data analytics, campaign management, marketing automation, and even social media marketing. They do offer an SEO tool, but it isn’t nearly as developed as category leaders like Moz and it certainly isn’t why marketers choose to work with Hubspot.

By acquiring Moz, Hubspot would instantly add a category leading product in a critical sub vertical and bolster the network effect of its existing content marketing product suite.

Historically, Hubspot hasn’t written checks in the size range that would be required to buy a controlling interest in Moz. With almost $1B of cash burning a hole through their balance sheet I think it’s time they put it to work.

Moz seems like a perfect asset give Hubspot’s financial profile.  It trades at 13x revenue and accumulated negative $36.2M of EBITDA in 2018.  They could likely buy Moz at 1/4th revenue multiple while gaining $10M of EBITDA. By adding $70M of ARR at 1/4th Hubspot’s trading multiple the stock could inflate to a number that would make the acquisition very cheap.

Would Adobe Bite?

Adobe’s acquisition of Marketo last year sent shock waves through the Marketing Tech ecosystem. Merging Adobe’s end-to-end solution for content creation, analytics, and commerce with Marketo’s leading marketing engagement and automation platform provides unrivaled functionality under one roof – or, cloud.

Adding Moz’s SEO capabilities would inform marketers using the Adobe Experience cloud on what content to create and what it should say to optimize impressions and conversions. The loop would be completed. The SEO generates demand for content, Adobe cloud enables content creation, and Marketo Engagement automates content distribution.  It almost makes too much sense.
What do you think?

Sale Price in $209m Range?

Based on vertical, scale, revenue growth, unit economic profile, and cash flow generation I would bet Moz would trade for 2.5x-4x their qualified customer cohort revenue, and 1x their unqualified customer cohort revenue.  With a price tag somewhere between $139M and $209M who do you think pulls the trigger?