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How much is Substack worth?

If you are reading this post, you have probably received the same email that I did offering the opportunity to invest in Substack. As of my writing this, they have already reached their legal maximum in subscriptions to this offering.

The average amount people have subscribed for is USD 1200 - and given its oversubscription means most people are likely to end up with USD 1000 or stock or less. This capital raise will give Substack a USD655m post-money valuation. Is that the right value? Lets analyse some of the numbers they give us. As you would expect monthly subscriptions have been growing rapidly. In my experience somewhere between 5 to 10% of free subscribers become paid subscribers.

I am one of 17,000 writers earning money on Substack. The top 10 publishers on Substack are taking in USD25m annually. Substack do not disclose who these publishers are, but looking at another content creator website like Onlyfans, the top publisher is probably is making 10 times as much as the 10th. So lets say USD7m for the top publisher, and USD 700k for the 10th (if this is correct some of the financial Substacks that I have collaborated on should be in the top 10 writers). Just like Onlyfans, the top 10 writers probably make 25% of all revenue, which puts last year total revenue for Substack at USD 100mn. Growth recently has probably been supercharged by the closure of Revue.

Cumulative money paid to writers is USD300m. Substack have not given out any audited financials, but eyeballing the numbers below, it looks like maybe USD10m was paid out to writers in February. If we add in some growth and annualise, what would maybe equate to USD200m paid annually to writers. With 10m a month in fees paid, and 17,000 paid writers, the AVERAGE publisher is making around USD 600 a month or USD 7000 a year. But this obviously skewed by top performers. My guess is the MEDIAN paid writer on Substack is making close to zero.

Substack revenue stream is pretty transparent, as it takes 10% of money paid to writers with another 4% taken by Stripe.

So on annualised revenue basis, Substack is making about USD 20m, and so the valuation of USD655m is a punchy 30 times sales, but obviously this valuation includes a lot of growth, and reflects the annuity style income stream that this should generate. As shown above, the total revenue through the business (before Substack takes a cut) probably grew from USD 100m to USD200m.

OnlyFans and Patreon are slighly more mature (in both senses of the word!) business models. OnlyFans continues to grow, while Patreon has recently announced layoffs. This seems to mean content creation is a winner take all model. For Substack, the nearest competitor was Revue, which was bought by Twitter in 2021. The good news for Substack, is that Revue has been shutdown this year. This all sounds good for Substack, but 20x sales on a probably loss making business strikes me at best fair, rather than cheap.

Capital Flows and Asset Markets
Russell Clark