BuzzFeed’s Bumpy List Shows What Digital Media Really Worth

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When Jonah Peretti, the founder of BuzzFeed, rang the opening bell on Wall Street, going public with its 15-year-old media company on Monday, it was a party affair. Confetti was blown into the air as Peretti posed for photos and the group’s employees dutifully shouted behind him, holding up signs reading “Omg”, “Win” and “Glad we didn’t sell to Waystar. – a cheeky reference to the fictional society of the television series Succession.

The cheers stopped there. After initially rising over 50% in the morning, the BuzzFeed stock price fell, ending the day down over 11%. It fell again by 8% on Tuesday, 2% on Wednesday and 24% on Thursday.

This should come as no surprise to a list that already seemed doomed. Days before the stock went live, BuzzFeed disturbingly revealed that investors in its special-purpose acquisition company, or Spac, had fled the scene. After finding out that they had signed up to invest in BuzzFeed, they withdrew 94% of their money.

To be fair, “buyouts” of Spacs – investors who initially pledged the money but then pulled it out – have been rampant because Spac itself is no longer in fashion. The average redemption rate in the third quarter was 52%, compared to 10% in the first three months of the year, according to Dealogic.

But at 94%, BuzzFeed is much worse than average. The company received just $ 16 million of the initial $ 288 million raised by 890 Fifth Avenue Partners, the Spac that merged with BuzzFeed to make it public.

BuzzFeed’s initial public offering is something of a referendum on digital media, a sector that in its day attracted $ 100 million in investment from venture capitalists and then suffered a slump. equally impressive. At one point in the past decade, investors viewed BuzzFeed as the media savior or a WeWork-like failure.

Last week I spoke with Peretti – the “go viral” pioneer – about posting in public. The founder, who sees BuzzFeed as a pioneer in legitimizing digital media and helping consolidate the industry, has swept away non-believers. “If you have the chief [in the industry] audience, trading at any multiple that we need to negotiate, then it’s possible to say to the actors on the subscale, “Hey, why don’t you come join us? “”, He said.

Peretti said the digital media industry is stuck in a time when “everyone imagines what they are worth”. He wants reporters and investors to break through hype cycles and focus on BuzzFeed’s financials.

He makes a good point. Calculating the value of digital media companies has always been an obscure art, not a science. As the industry has consolidated in recent years, deals have often been concluded in stocks and not in cash, allowing companies to effectively build their own valuations. Now the public market will call: How much is BuzzFeed really worth?

The typical shortcut takes the ratio of market capitalization to annual net income. BuzzFeed’s market value fell to $ 775 million on Thursday. In the year to the end of September, it made a net profit of $ 16 million, or $ 3 million from the addition of Complex, which BuzzFeed agreed to acquire in June. This gives it a multiple of over 250 times the bottom line.

Several years ago, investors and analysts wondered if BuzzFeed would overthrow the New York Times, the old heavy newspapers considered ill-equipped for a digital world. The Times has since turned out to be a remarkable achievement and now trades at a multiple of 47 times its net income, placing it in the neighborhood of Netflix.

So the market tells us that BuzzFeed should be treated differently from the New York Times. Executives at 890 Fifth Avenue, who chose BuzzFeed as their Spac target, were drawn to its revenue multiple, a metric typically used for promising startups that grow quickly but don’t make a profit.

By this measure, BuzzFeed looks cheap. Its market capitalization is about 1.5 times its annual revenue, while Axel Springer agreed in August to acquire digital news site Politico for $ 1 billion, or about five times its turnover. business. Vice in 2019 bought Refinery29 as part of a deal that valued the group at around four times its annual revenue. By adopting these multiples, BuzzFeed is expected to be valued closer to $ 2 billion or $ 2.5 billion.

BuzzFeed executives would like to be compared to stocks on social media, which have even higher valuations. Snap’s market capitalization is 24 times its annual revenue, while Twitter’s is eight times its annual revenue.

The problem is, this thesis is based on the assumption that BuzzFeed is a start-up with a clear path to profitability, and not a media group 15 years past its prime. BuzzFeed was founded in 2006. It’s not a new disruptor anymore. The group won its first Pulitzer Prize this year, indicating that the company still has room to grow, at least in its journalism.

But Rich Greenfield, media analyst at LightShed, is skeptical. “If you think they’re in hyper growth mode where it’s early days and they’re not making a profit yet, so you have to plan on four or five years, sure,” he said. “The question is: it’s not a start-up, how many years has it been around now?

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