Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
7investing CEO Simon Erickson chats with BlackBook Investments CEO Mohit Tater about how to invest in internet websites.
July 6, 2023 – By Simon Erickson
You could think of the internet as a gigantic digital Monopoly board. Those who invest in and develop the right properties can reap incredible real estate gains over time.
But how should a potential investor even begin his or her search? Just as physical homes are priced based upon the neighborhood and the beauty of the kitchen counters, are there similar things to look for in a digital property? And is advertising still the primary money-maker for internet sites — or has it transitioned to other income streams such as subscriptions or affiliate marketing?
To help us answer those questions, we’ve brought in an expert. Mohit Tater is a lifelong investor in digital real estate. His private equity firm BlackBook Investments invests in undervalued websites and improves their ROI over time. His company has delivered a 27% ROI annually (after fees) for its investors for the past ten years.
Simon kicks of the interview by asking Mohit how the internet has changed the most during the past decade. Mohit says there are significantly more creators today and that video has become the predominant form of content. This opens up new forms of advertising, which command much higher rates and pricing than simple programmatic display or audio ads. Even though it’s made headlines in recent years, it’s likely the third-party cookie will continue to be used for tracking we behavior for quite some time.
Mohit then describes what BlackBook looks for when making an investment. They target stable growth in revenues and traffic, with “low hanging fruit” that is available for them to improve upon.
In the final segment, Mohit describes how GPT will augment — not displace — Google’s advertising business and how the internet is different in India than it is in America.
Publicly-traded companies mentioned in this podcast include Alphabet, Meta Platforms, and Twitter. 7investing’s advisors and/or its guests may have positions in the companies that are mentioned.
Don’t miss out on future conversations like this! 7investing will be publishing upcoming interviews with the CEOs of PubMatic, Rocket Lab, and more. Join 7investing’s free email list to get our podcasts and investing insights delivered directly to your Inbox.
Simon Erickson 00:03
Hello, everyone and welcome to this edition of our 7investing podcast where it’s our mission to empower you to invest in your future. If you’d like to learn more about our long term investing approach and also see our stock recommendations each and every month, visit us at 7investing.com/subscribe.
Simon Erickson 00:18
I’m your host, Simon Erickson. We’re going to be talking about digital assets today. The World Wide Web, the information superhighway, the Internet has become quite a popular place over the past few decades. I’m very excited to welcome my guest, Mohit Tater to the show today. He’s the CEO of BlackBook Investments. And a tenured expert when it comes to setting up shop online buying and selling businesses and also managing them.
Simon Erickson 00:41
Welcome Mohit. Thanks very much for joining me today on the 7investing podcast.
Mohit Tater 00:45
Thanks for having me, Simon. That was a generous intro. Thank you so much.
Simon Erickson 00:50
I’ve seen previous interviews of yours. I’m familiar with your story about how you kind of got started with blogging and then bought some properties and now manage hundreds of thousands of dollars in cash flow. But let me jump into the punchline, though. Let me let me ask you: with everything that you’ve seen over the last 10 or 15 years or so, how has the internet changed the most do you think?
Mohit Tater 01:12
I think it’s much more dynamic. Now, there are much more creators today than they were 10 years ago. There’s much more content, everyone has a phone. And there’s much more video now, rather than you know, just text only. So text is kind of taken a backseat right now and video is like at the forefront. And it’s only going to capture more market share in the coming year. So that’s one thing that and you know, video appeals to everyone. Like, someone even was not well read or well educated, they can create a video and that might go viral. Whereas you know, if you if it were just for the text based content, you’d have to be like thoughtful or intellectual or you know, have to have your own ideas to write something meaningful. But with videos, I mean, there’s all kinds of videos that are going crazy, like, it could be just spoof videos or funny videos, and you don’t need to you don’t need brains to do those. I mean, you can be a kid and do those. So it’s put more power in, in the hands of people. As creators, I would say.
Simon Erickson 02:13
Yeah, and one of those transitions we’ve seen, like, you’re like you’re mentioning the cat videos, you know, or any other funny videos. I mean, you’ve kind of seen the rise of things like TikTok, right? Smaller communities versus just these massive properties. Can you talk a little bit about how advertising has changed, you know, from text and just display ads that were very simple to a much more complex internet we have now?
Mohit Tater 02:35
Yeah, I mean, it was only it used to be Google Adsense back in the day, and there was no other choice to be honest. And there was like media.net also. But there’s been a lot of new players in the industry, like X ray, which is now wrapped to media vine. So programmatic ads, display ads are like, on the up, and they’re on the rise right now, not just for text content. But of course, also for video related video content, ads have taken over. And as you know, all the web, except, let’s say maybe Apple, I think Google, Facebook, Twitter, all of these companies rely on ads for their revenue. So they’re here to stay. They’ve only grown in the last 5-10 years. And clicks used to be four times cheaper, but it’s gotten costly now too much. So which means that there’s more advertising dollars available. For them, there’s more people more companies advertising ever than before.
Mohit Tater 03:39
So, yeah, I mean, display ads, and ads in general have, you know, gone up quite a lot in the past few years. There were talks that you know, ads are dead and everything. But I don’t see them going anywhere. Because the big companies there, they rely on ad revenue for their. That’s their business model. So they’re here to stay only going to grow from here.
Simon Erickson 04:00
And how about smaller publishers too? I’ve certainly seen the largest getting all the traffic. The largest sites out there that we’re already familiar with, of course, they’re monetizing with advertising. Is it the same if you’re a smaller publisher? Are you still working with Google and trying to play display ads? Or has that changed at all in the last couple of years?
Mohit Tater 04:16
Yeah, even for smaller players, I’d say they have other options other than Google AdSense. So it’s always is player that they allow sites that don’t have too much traffic, but they allowed them to be on their platform, and they usually make better with zoic, then they would would add AdSense. And then there’s media.net. Then there’s adthrive. Different levels of traffic requirements for these two companies. And that’s where you can unlock the higher RPM for your site, because they have better advertisers, their inventory is better their you know, advertiser publisher matching is better so that they can optimize for it. For every click, they can optimize forever, you know. Impressions on your site based on your niche and the demographic they have. So yeah, it has gotten better. Earlier, it was very generic. But now with cookies and everything, you only see targeted ads. And those are, you know, really valuable to your, or in specific to the readers of that particular publication. So no matter how small or big of a publication you are, I think there’s a lot of revenue to be generated now. And not just an ads, I typically get revenues also big, by the way.
Mohit Tater 05:32
So yeah, doesn’t matter. If you’re a big name, publisher, or a small time, single person, writer, you can make a live, you can make a living pretty much today writing.
Simon Erickson 05:43
Yeah. And then the mechanism for advertising. I wanted to ask your thoughts about the third party cookie. You know, regulators have really kind of brought the hammer down a lot of big tech companies tracking the internet. That third party cookie has been the mechanism of identifying people and you know, how their browser was going through. We’ve seen both Google and Facebook and several others saying they’re gonna phase those out over the next couple of years.
Simon Erickson 06:04
Is the third party cookies still going to be around for a while? Or are we starting to see a transition for how, you know, behavior on the internet is being tracked?
It should be here. It’s here to stay for a while, I mean, it’s not going anywhere. And you know, it’s not a bad thing, to be honest, like, people think of it as a bad thing. But I’ll tell you what, like, if you’re on the internet, data is public anyways, there’s no such thing as privacy if you are on the internet. Okay. So that’s, that’s one thing. So if you’re going to see ads, you might as well see ads that are targeted to you, then see something that you’re not interested in. Because I often discover really good things by targeted ads, and which I’m interested in, and I maybe sometimes end up buying those things. So I’m all for it. Because I’m, you know, I know that my data is public, because I’m on the internet. Privacy is just something that you know, it’s non existent. So might as well get targeted with relevant ads, you know, rather than irrelevant ones. So I think cookies are here to stay for a while. Even if they go, there will be maybe some other mechanism that these companies will devise to track user data, because because once you’ve done targeted advertising, I mean, there’s no going back, because those were the, you know, old days, and where you didn’t have the targeting, like, you know, that you have, at the level, they’re doing it today. And then you would see random ads or random stuff. But with the targeting, it’s so super targeted that you only see, you’re talking about it, and then you see an ad for it the next day. That’s the level of targeting that there is today. So I don’t think there’s any going back from this, maybe they’ll change the mechanism. But yeah, they’ll still be targeted ads in the future. Yeah.
Simon Erickson 07:47
Could you tell us a little bit about what you do with BlackBook Investments? Are you going out and you know, just like we might be buying houses and collecting rent checks from them in the physical world; are you doing the same thing with digital assets? Where you’re buying properties and finding ways to monetize?
Mohit Tater 08:01
Pretty much similar. Yeah, so what I do is under with my company BlackBook Investments is we buy and operate a portfolio of online businesses, which can include content, websites, niche websites. We don’t do ecommerce, but we are into tools and software also. So these are businesses that generate revenue already, when by then we don’t buy, you know, businesses that don’t generate revenue. And when we buy them, we try to look for opportunities where we can grow the revenue, or maybe some low hanging fruit. So it’s just like how a real estate investor would, you know, find a fixer upper, get that for a good price, fix that up, you know, increase the rents, or either flip it, sell it, that’s exactly what we do. We come in, we buy the property, we buy the digital asset, we buy the website, the business, whatever we come in, we optimize it, we improve it, we increase the revenue, then we either keep it in our portfolio, or we sell it.
Mohit Tater 09:01
But I’m a long, long term cash flow guy, so I try and hold as much as I can. So the only difference between real estate and digital real estate is that what do I do is more hands on, like with a rental property. I mean, you don’t have to work on it every day, right? You can just maybe have, you know, collect your rent payments every month, or maybe fix something once in a while if it’s broken. But what we do is we buy actual running, you know, business active businesses that me and my team manage and run and grow. And that’s the reason we were able to get higher ROI for our investment. Because with real estate, you can get a cap rate of maybe 8, 10, 12%, maybe 15% if we’re really lucky. But with us, we have been able to deliver 27 to 28% annualized ROI to our investors for the past 10 years. And that’s after our fee. That’s our BlackBook speed. So, just imagine I mean, this the scope of of digital real estate, in terms of the ROI you can get.
Simon Erickson 10:08
Sign me up Mohit! I will gladly take a 27 to 28% return after fees. I will gladly pay you whatever you charge. [laughs]. And that’s a great return for investors.
Simon Erickson 10:16
Are there things that you look for though? You know, are there certain sites that you just have that you find very appealing? Either they’re in the right sector? Or they’re getting a ton of traffic? Or what finds what do you what do you see in those fixer uppers that really sticks out?
Mohit Tater 10:30
Yeah, so it’s not that always we look for fixer uppers. What we look for is solid, stable, and growing assets. These sites are either you know, doing a solid, stable revenue, or they’re going up in the revenue and traffic numbers. We do not buy distressed or, you know, declining assets. I’m not a turnaround expert, neither do I have any ambition to turn around dying businesses or websites, by just go with the you know, tight, and then by growing businesses, that’s one thing, I try and buy something evergreen.
Mohit Tater 11:02
I, for example, I buy something that is probably, you know, in let’s say the technology is going to be there. It might change what technology is going to be there. As opposed to let’s say, I’m buying a super niche site about a particular game that might not exist, after two years or three years. It might be the hot thing right now, but might not exist in three years. So I look for long term play. So let’s say whether that thing is going to be around five years from now or not. If that’s the case, then of course, we’ll you know, we’ll consider it, if not, then not consider it.
Mohit Tater 11:38
Then the third thing is that there should be some low, you know, low hanging fruit for us to take. So whether that should be an n monetize the stream of revenue, let’s say the site has display ads, but hasn’t implemented affiliate revenue, we can come in and do that. Or let’s say YC Versa, or let’s say, you know, we can come in and negotiate higher commissions with the existing affiliates, so that we can increase the income from day one with the existing traffic. Or we can, you know, just something as simple as swapping out a display ad network with another one. Let’s say I am on media vine and I can get my other sites on media vine to with a lower amount of threshold traffic threshold, as opposed to if I were just signing up with them as a new publisher. So I see a guy doing, you know, his site or her site on AdSense, they’re making whatever five to four to 3000 bucks on there. And I know that if I move this to media mine, I’m going to immediately see a bump of 30% in the revenue. And I can do that. So, I look for those properties. So low hanging fruit, and it should be something that I should be able to understand should not be something obscure that I cannot even follow the niche or the topic. Because if I cannot, I cannot see if the writer has done justice to what the topic is what the articles are. So it should be something that at least I can understand. If not, you know write about because I don’t write of course, but we hire experts. So it should be fairly relatively easy to write find experts for to write on the site. Also, because we only work with experts and not generic writers for our content for all our websites. And that truly does really well I mean, compared to generic research content via a random generic writer.
Mohit Tater 13:32
And last thing is, when I see who the seller is, what their motivation is, you know, for selling. I like to buy from people who have done this as a passion as a hobby. And maybe they have, you know, either just died out because a lot or maybe they’re in need of some cash. And I really try to stay away from people who do this for a living, because their job is just to make that site to sell. And I prefer to buy from someone genuine, who has put in time and effort and their expertise into that site. So yeah, these are some some of the things that I look for.
Simon Erickson 14:10
You mentioned a couple of times on your site and the materials I’ve seen that you’ve talked about before about the digital asset lifecycle. Can you talk a little bit about what that means? You know, do websites evolve over time?
Mohit Tater 14:21
Yeah, I mean, they do. But then there are sites that we have been holding for eight to nine to 10 years now and they’re still with us. And are they still doing the same thing on them? It’s still but yeah, for typical lifecycle of a website that we buy for an investor, let’s say it’s like, two and a half, three year timespan for the whole lifecycle to complete. Some investors like holding longer they don’t want to sell because they like the cash flow. But typically, you know, what you do is you identify an asset you’d negotiate do the due diligence by it, that’s going to take three to four months. Once you’ve bought it then you come in and you implement as your growth strategy. Implement your skills to grow that website. That takes about, let’s say, six to 12 months. 12 months to, you know, do everything that you have planned for that site. So we’re almost 18 months in now. Then you collect the cash flow from it, let’s say for another six to 12 months, and reduce the expenses.
Mohit Tater 15:19
And when you’re looking at the two and a half year mark from starting, then you can start thinking about, you know, selling it. So, you know, another six months, and then you list it. And since the expenses have been less, in the last 12 months, your profits are maximized. And because of that, you can get a higher price for your website, because the profit is more and people buy on the multiple the profit. So if your site is doing, let’s say, $100,000 a year in net profit, you can maybe get $200,000 to $400,000 for it. And if you’re having too many expenses, then that takes away from profit that takes your site’s value lower. So yeah, you optimize for the first year, year and a half. Let it collect revenue for another 6-12 months. And then we’re able to in three years, we’re able to get an annualized ROI of 27 to 30%, which includes the dividend payouts. The income that you get from the website while running it, and also any capital gains that you might realize when you sell it.
Simon Erickson 16:23
But it does mean that I’ve got to ask the question that everyone knows, I’m going to ask you. Which is AI. Which I hear this about 17 times a day: GPT. Right? Everyone thinks this is disrupting everything, including the internet. Certainly GPT is a different way of looking for information in typical Google search. What’s your thoughts on OpenAI and GPT? On all the developers?
Mohit Tater 16:45
Yeah, I mean, there’s a lot of doom and gloom, right? Terror in the streets?
Simon Erickson 16:48
Right. I remember. Yeah. [laughs]
Mohit Tater 16:50
I think there’s nothing to be afraid of. First of all, I also think that AI and you know, all these tools and chat GPT. For they’re not a fad, I think they’re here to stay and only are only going to improve over time. But they will augment existing search, they will not replace the existing source data, as we see today. The reason being AI needs data and content to output. And if there is no original content, or data written by original actual writers, there is nothing for the AI to you know, learn from. First of all, so there will always be demand for high quality, original content by genuine experts, niche experts. So that’s one thing.
Mohit Tater 17:34
The other thing is, if you know, all these companies like Google, Microsoft, Facebook, they all rely, you know, heavily on ad revenue. So even if it’s, you know, normal searches replaced by catch up at Google will find a way to integrate that into the existing search model so that they can show ads and collect revenue. And it will augment. So what I’ve seen is, even though you’re like asking Google Bard about whatever question that you might have, but it will give you the list of articles on the site that you know, it has taken the reference from. And more often than not, you’d want to go and check out those sites, because you’d want to learn more about whatever topic you’re researching, or whatever product you’re researching.
Mohit Tater 18:26
And thirdly, I don’t think it is so easy for AI to replace the human nature. The tendency, we’ve been searching a particular way for the past 20 years that Google was around. It’s not going to change overnight. Like, and even for people like us who are savvy, who were at the forefront of technology and updating the industry. Even I don’t use Chat GPT. I don’t even remember last time I used it. I still use Google the way I used to two years ago, it’s not going to change behavior overnight. So there’s nothing to be afraid of it. It will augment existing search. And if not, it’ll only increase the, you know, revenue and, and clicks and views for really good original content. And it will kind of, you know, phase out or basically generate content is going to lose out for AI. So that’s the risk there is. So if you’re doing generate content, I mean, then you’re at a loss for sure. But if your content is top notch and original, you have nothing to be afraid of, I feel.
Simon Erickson 19:37
And then my last question Mo is, I know that you’re a traveler. I know that you spend a lot of time in India, you spent a lot of time here in the US. I think you’re traveling right now. You’ve seen a bunch of different continents. Excluding China for a moment with this question, can you talk a little bit — compare and contrast — how the internet is different in different regions of the globe? How it’s regulated, how culturally it’s seen how people like to publish things? So, can you just talk a little bit of kind of the similarities and the differences between like India? North America? South America? Yeah. Anywhere you want to, but just kind of your perspective on that.
Mohit Tater 20:10
Yeah, I mean, just as a basic user of the internet, I think India is a little bit more restricted. To give you an example, let’s say, torrent websites are banned in India. So you cannot use a torrent website to download stuff. That’s one thing. Pornography is banned in India. So you cannot use you know, any pornography websites. Not judging whether they’re good or bad, but just giving you an idea of that. And then you know, TikTok is banned in India. Again, not saying it’s good or bad, but it is banned.
Mohit Tater 20:41
So the Indian government deems it not good for the Indian audience. So they manage like, two, three years ago. And so there is censorship. But probably, it might be for the better, because, of course, if the government is taking a certain step, it is for the good of the people. Because, you know, if you think about it, I mean, TikTok is from entertainment, but it is a loss of productivity. It’s also you know, when people spend less spend mindless hours, you know, on it, so it just kind of decreases the overall productivity. So it’s all for a reason, as opposed to in the US were, pretty much whatever I just documented is nothing is banned out of those things.
Mohit Tater 21:26
So yeah, I mean, it is a little different. But, I mean, that’s fine. I mean, it’s not something that you know, we cannot do without I mean, you can always use a VPN. So yeah, I mean, as a free speech, it is the same I think it’s the same in India as it is in the US. It’s a democratic country. So there’s no democracy so people have the right to freedom to speech.
Simon Erickson 21:56
Fantastic. Once again, Mohit Tater is the CEO and founder of BlackBook Investments. He’s kind of an expert out there in buying and selling internet properties and also operating them for several decades. Mohit, thanks very much for being a part of our 7investing podcast today.
Mohit Tater 22:09
Thanks, Simon. Really good to be on the pod. Thank you.
Simon Erickson 22:13
And thanks, everybody, for tuning in to this episode. We’re here to empower you to invest in your future. We are 7investing!
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