Inside Pornhub’s finances

Pornhub’s parent company is surprisingly profitable despite recent financial and reputational hits, according to internal projections reviewed by Semafor that give a rare look inside the firm.

Executives anticipated making tens of millions of dollars in profits despite MasterCard and Visa refusing to process payments for certain websites including Pornhub, with operating margins of about 27% in 2021 and almost 30% in 2022, according to estimates the company showed potential investors in 2021. In comparison, Facebook parent Meta had an operating margin of 25% in 2022.

MindGeek, which owns Pornhub and other adult websites such as Brazzers, was expected to churn out profits despite not attracting high-end advertisers thanks to relatively low costs.

Getting banned by Visa and Mastercard lowered expected earnings by as much as 40% in 2022. If the payments giants started processing again, MindGeek projected its 2022 revenue to be about $455 million — less than the $460 million the company said it generated in 2018.

The figures come from presentations and internal reports MindGeek, through an outside firm, showed potential investors when hoping to attract takeover interest, according to people familiar with the effort. Investment group Ethical Capital Partners, which formed specifically for this acquisition, eventually bought MindGeek in March of this year.

Pornhub was the 12th most visited website in the world in June, according to web traffic data tracker SimilarWeb, ahead of Amazon, TikTok, and LinkedIn.

Ethical Capital declined to comment.

When the deal was announced, Ethical Capital’s principals — made up of lawyers, former law enforcement heads, and cannabis entrepreneurs — declined to share the price they paid for the company. The investment manager’s statement called MindGeek “a dynamic tech brand that is built upon a foundation of trust, safety, and compliance.”

Activists were quick to scoff at the description, with Justice Defense Fund founder Laila Mickelwait calling the acquisition a “whitewashing farce.”

Without knowing the price, it’s impossible to say if this was a good deal for Ethical Capital on fundamental valuation terms. But from a reputational and legal perspective, it’s an obviously toxic asset.

The streaming sites are the worst of the adult industry for both consumers and performers. There’s lax age verification on the free sites, leading to bans against pornography by conservative states. Meanwhile, porn stars and digital sex workers have migrated to paid sites like Only Fans for more autonomy and better working conditions — potentially a bigger disruptor to MindGeek’s business than any state-wide bans, which spurred people to seek out VPNs.

And this isn’t even scratching the surface of the legal issues. There’s at least seven class-action lawsuits related to alleged child porn and nonconsensual content that could cost the company billions.

If you can stomach the headlines, the asset’s toxicity might be a selling point given how it likely deflated the asking price. And its traffic is real — how often is there a chance to buy a website that gets more eyeballs than Amazon?

“Our pre-close reviews revealed that MindGeek operates legally and responsibly,” said Derek Ogden, a partner at Ethical Capital Partners and a former director for Canada’s Royal Mounted Police, in the release.

Despite pledges of a safety overhaul, a person who works in Pornhub’s headquarters in Montreal said it’s been “business as usual” since the new owners took over, partly because a lot of changes have already been made. In late 2020, Pornhub deleted all of its unverified videos — previously anonymous users could upload content to the site — in response to Visa and MasterCard’s decision. It was two-thirds of the site’s total library of content.

• Nicholas Kristof’s December 2020 column on the real-life pain caused by the platform’s lack of oversight is a tough, but important, read.