At a time when most of Israel’s content providers are struggling to survive, one of them has just made a cash killing. Walla, the Internet site that is part of the Bezeq group, is planning a major expansion of its news and content thanks to the sale earlier this month of its holdings in Yad2 for the whopping sum of 700 million shekels ($203 million). Yad 2, Israel’s largest classified ads website, was purchased by the German-based Axel Springer Digital Classified.
The man behind the deal is Walla’s CEO of the past eight years, Ilan Yeshua, who believes the sale will provide his company with financial resources that none of the competitors can match. In an interview with Haaretz, he spoke about taking the lead away from Ynet as a news provider and about what made him invest in a website for classified ads in the first place.
As one of the most veteran managers in the Israeli Internet industry -- he was Chief Executive Officer of Centre for Educational Technology, founder of a content and technology firm and CEO of Britannica in Israel -- Yeshua has witnessed how technology has eclipsed media content in importance over the last two decades. “In my entire career I dealt with the integration of the two,” he says.
Yeshua led an aggressive campaign of purchases at the end of the previous decade, which was intended to bring a large portion of Israeli web users to Walla. Some of the purchases were considered a success, and quite a few were not.
In 2010 he carried out his biggest move when he convinced shareholders that Walla Communications could — and should — take a huge risk by buying 75% of Yad2 for 117 million shekels. Many in the industry, including members of his board of directors, were shocked at the high price Yeshua was willing to pay for Yad2, especially when just a year later the site was valued at half that. But Yeshua was confident he was right.
Using the whiteboard in his small office n Tel Aviv, he outlines his strategy: “The world of content on the Internet moves along the axis between the pure content providers and the platforms. Content creators are publishers who run websites such as Ynet and TheMarker. The platforms are large sites such as Google and Facebook, which store other [peoples’] content. The farther you move along the axis from the creators in the direction of the platforms, the more growth and profitability increase. That is why I must push Walla as much as possible in the direction of a content platform: Commerce, tourism, coupons and such. Buying Yad2 was part of that,” explained Yeshua.
“The creators must spend 20% to 25% of their revenues to create content that draws in users. In comparison, a site like Yad2, which is a platform, creates user traffic without investing in content, since it all comes from the users. Yad2 also did not have a high infrastructure cost since the advertising was mostly ads of words that don’t take up much disk space. That is why the operating profitability of Yad2 was high - between 50% to 60% of revenues.”
This explains how Yad2 could rack up operating profits of 45 million shekels a year, while content sites can barely keep their heads above water.
“The money in Yad2 is collected from advertisers who want to connect with their customers exactly when they are in the market,” explains Yeshua. “Who comes to Yad2? People who want to buy an apartment or car. This is a group that wants to make a deal and the segmented approach to them is golden for the advertisers. The benefits that advertising on Yad2 gives real estate advertisers are enormous. In my opinion, the effectiveness of advertising on Yad2 is 10 times as effective as the advertising in other general media, digital and otherwise. That is why I think that Yad2 can continue to increase revenues,” he said.
Yeshua runs his empire far from the offices of its parent company, Bezeq Israel Telecom, but it is hard to disconnect the two. After years of independence, Walla was delisted from the Tel Aviv Stock Exchange and became a wholly owned subsidiary of the huge telecommunications firm in 2012. Shaul Elovitch controls Bezeq through his Eurocom group. Without a doubt, the strategic decision to sell Yad2 and expand its investments in news is connected to these changes.
If Yad2 is so important to Walla, why did you decide to sell?
When the company was public and traded on the stock market, my commitment as a manager was to the company and the shareholders. Today, after all the shares were bought by Bezeq, my focus is also for the group: How Walla is integrated into the overall strategy of the Bezeq group. What interests Bezeq is differentiated content. The competition in the world of communications infrastructure is over the price, and the content can give Bezeq important differentiation.
“I believe that within three to four years Walla will turn into a strategic asset for Bezeq, since it can differentiate its product from its competitors. We want to become the main news group and lead in areas such as sports, breaking news and economics.”
In practice, the sale of Yad2 marks a significant strategic shift for the company, which seems to have given up on the attempt to become a platform. Under the comfortable umbrella of Bezeq and with the plump cushion of cash from the sale of Yad2, Walla can now allow itself to earn less profit and move along the axis in the direction of content creation.
For now it is not clear — and Yeshua refuses to divulge — how much money will remain in Walla’s kitty after Bezeq draws its dividend from the Yad2 deal. Bezeq will make a huge profit. It will be left with a pre-tax capital gain of 560 million shekels before taxes. In addition, Yad2 paid Walla some 68 million shekels in dividends in the four years it owned the company. Walla bought a 75% stake in Yad2 in 2010 for 117.5 million shekels from Coral-Tell Internet Services. It acquired the remainder last November for 50 million shekels, thus valuing the company at 300 million shekels, nearly double what it was worth in the first sale.
Taking on Ynet
Yeshua says that tens of millions of shekels will remain for Walla after Bezeq takes its share, which will allow it to compete and try to take the lead in news away from Ynet for the first time. With these financial resources Walla will be able to invest in improving and marketing its product in order to become the leading content site in Israel, he said.
“There is no way to strengthen the content without hiring manpower. Walla will hire content people and will provide a warm and stable home for many journalists. Today we already have 150 editorial staff and over 100 freelancers,” he notes.
Walla will not become a cash flow burden on Bezeq, continues Yeshua. The site, which lost 17 million shekels in 2012 — despite the profits from Yad2 — actually improved its financial results n 2013 and was even profitable for a few months. “We will continue to be an independent profit center that will not be dependent on support from Bezeq. We may have lost money in 2013, but already for a few quarters we have been profitable. We reduced expenses, but did not harm the investment in content,” said Yeshua, though Walla has in fact laid off staff in recent years.
If Yeshua, 58, had realized his original plans, then today he would be a doctor. After his military service he started studying medicine at Hebrew University in Jerusalem, but after five years he understood that it was not his mission in life and left. He has never completely given up on the field of medicine though, and a book he wrote “First Aid in Emergencies” has become the official text for the IDF’s Medical Corps and Magen David Adom rescues service. In addition to his positions at the Center for Educational Technology and Britannica in Israel, Yeshua also worked in the United States for three years, before returning to Israel to become CEO of Walla.
You completed a big strategic and financial move with Walla. Do you intend on moving on to your next position now?
“I have been here for eight years already. This is my home. I am the first to arrive at the office and the last to leave. If they don’t fire me, I am here for the long term. There is a lot more work ahead of us and I will enjoy doing it.”