A Watershed Moment in the history of digital media.
Venture back to sometime, circa 2011: I got off the stage after a panel I was moderating when someone came over and said they were a fan. I was elated, thinking they were fans of my startup, WatchMojo, then in its fifth year of operations (and year we’d break-even, before reaching profitability). But no, they were fans of my columns, the articles I’d write on startups and strategy for TechCrunch, and the ones on online video and digital advertising for Mediapost. When I told them that my main job was running WatchMojo, I mentioned that we had a vision (the “why” and constant that never changes) to inform and entertain audiences, with a video on every topic (the mission, or the what/how, and what changes over time). As we chatted, the audience member asked me what kind of videos we were known for, I listed a number of formats but concluded: we’re increasingly focused on top 10 lists on the people and things people are most passionate about. “Lists?” he replied, adding “so kind of like the Buzzfeed of video?”
I said, “well, I think Buzzfeed wants to be the Buzzfeed of videos, but sure.”
As any self-respecting NY-based media company would aspire to, Buzzfeed by then had expanded from their cat-inspired listicles (not a knock) to hard core news, for that is what gave NY media companies the credibility of their peers.
“News,” meanwhile, “was a burning house no one would be crazy to run into,” according to my industry friend and competitor Jim Louderback (who then ran our competitors at Revision3, today runs Vidcon for Viacom and whom was crazy enough to ask me to give the keynote on YouTube’s 15-year anniversary). Over the years, Buzzfeed evolved from scrappy startup, to media darling, to heavily-funded behemoth who turned down a massive offer from Disney to today finally becoming the first digital native media company amongst the big bellwethers Vice Media, Vox Media, Group Nine to go public. Love ’em or hate ’em, it’s a big deal. As a long time analyst and entrepreneur in the space, people have asked me about Buzzfeed’s IPO, so I thought I’d gather some thoughts and share them below. Finance geeks will point out that it was a SPAC and not an IPO, but the general sentiments below remain the same.
For context and background, IPOs used to be priced to “pop,” but that meant the company kept less of the proceeds. Now, the recent slate of tech IPOs (Snowflake, Affirm, Coinbase, Airbnb) were actually priced to maximize money for the company. Most have fallen the ensuing months/quarter until the earnings report do the talking and investors familiarize themselves with the company, then they take off (now granted, this market is crazy in that practically all assets rose in value). Thus, that Buzzfeed has fallen in value is not alarming per se, but more a general trend we have seen all year.
Now, with BZFD in particular, to clarify a common issue more than a few people have asked me (and journalists themselves have mistaken over),
– Buzzfeed’s valuation upon trading was $1.5 billion, which indeed was below the $1.7 billion NBC Universal valued it at when it invested in November 2016. Now mind you, in digital media history, that was a different era when Vice was valued at over $5 billion dollars on the heels of a TPG investment.
Since BZFD began trading on Monday, the company has shed some 40% of its value, and while CNBC correctly pegs it now at $900M in market cap:
Yahoo!, Google and Nasdaq indicate a lower value, which creates some confusion:
Anyway, based on its financials, namely some $375M in revenues (which excludes any contributions from Complex, which it acquired while “de-SPACing”):
A $900M valuation implies a 3X multiple, which isn’t unreasonable and in fact, below the 2016 era levels when the comparables were commanding 7X top-line multiples.
A fair criticism is how can a company that has grown revenues from $307M to $325M in two years suddenly project to grow revenues at 25% (as it did in its IPO documents)? Of course, this is where Complex – and future M&A – comes in. Disclosure #1, I consider Complex’s co-founder Rich Antoniello a good friend and speak to him frequently enough, but don’t pretend to have any insights herein.
Moreover, if the company earned $36M in EBITDA, then that is promising… if the idea is for it to remain a “going concern.” If the idea is to navigate the next year or two before a larger media company buys it, then a Gross Profit close to $200M is certainly intriguing, as a lot of the Operating Expenses would be cut out once integrated by a larger org with their own Legal, Accounting, etc. departments. FWIW, Big Media is now pushing their own IP and less interested in buying these digital companies, but media companies’ priorities tend to change quickly. But the fact remains, Disney at one time offered to buy both Vice and Buzzfeed, but today they’re all in Marvel, Lucas, etc. and pushing those out in the metaverse and whatever other flavor du jour comes along.
A New Era
Critics of Vice, Buzzfeed, Group Nine, Bustle and all other heavily funded content companies may have legitimate complaints. But in this context, that’s all in the past. Come hell or high water, Buzzfeed CEO Jonah Peretti got this across the IPO line, and that is a bit of a game changer because no one amongst VOX, Group Nine, Bustle, Vice has the capacity to do any meaningful M&A with cash…
Yes, BZFD did only cash in $16M of the $200-300M it raised, but I think that’s a reflection of the general apathy towards digital media content companies (vis-a-vis other higher-risk, but higher-reward investment opportunities in the public markets) and the fact that the $1.5B was below the $1.7B valuation at the last financing.
The fact that BZFD is sliding post IPO has to do, I think, with the fact that by VC and PE standards, most of their investors suffered from investor fatigue and just wanted out (I know, since I apparently moonlight as a shrink to investors who fund our larger competitors). Thus, there’s far more selling pressure than demand for shares at the onset.
Over time, BZFD will need to identify the right investors whose risk profile matches the company’s return trajectory. Disclosure #2: I picked up some shares of Buzzfeed below $10. When I buy shares of Snowflake (since sold) or Shopify, it’s apples to Buzzfeed’s oranges, in essence. But the same way that my investments in Enthusiast, Chicken Soup for the Soul, some of my best bets took a while before getting in the money. Ultimately – and in media, this is key – brands matter and Buzzfeed, Tasty, HuffPo and Complex (including Hot Ones etc.) are extremely strong brands. This doesn’t mean that BZFD will command a tech stock-like return, but it also provides a safety net over time.
Finally, one could ironically argue that BZFD’s lacklustre debut makes it harder for VOX, Group Nine, Bustle, Vice to pursue the same path, freezing the competitors while BZFD works out the kinks as a public company. Incidentally, while journalists have tended to zone in almost exclusively on this cabal of venture-backed media bellwethers, I assure you there are another dozen or so companies with the same roll-up strategy and promises of milk and honey to target companies (many of whom already have public stock, but lower profiles, but I digress).
Bottom line, Buzzfeed’s stock is not for everyone, but depending on your time horizon and overall risk profile, it may be a nice complementary addition as a proxy for the growth of online media.
Disclaimers: Just remember I am not a certified advisor and these are the musings of an entrepreneur with clearly way too much time on his hands…