Is BuzzFeed Stock a Buy?

BuzzFeed (NASDAQ:BZFD) converted over the past 15 years from a pop culture quiz and viral clickbait site into a serious news conglomerate. Not only does BuzzFeed cover political stories, but it has expanded to include brands like HuffPost and Complex Networks, which produces popular shows like Hot Ones.

However, the BuzzFeed IPO is considered one of the biggest flops of last year. For some investors that could translate to a deal in the making, so is BZFD stock a buy?

The U.S. media and entertainment industry is expected to be worth $825 billion by 2023, but BuzzFeed is a relatively small player in that industry worth around half a billion.

By comparison, the New York Times (NYSE:NYT) is worth around $7 billion, and most news outlets not owned by cable providers are owned by companies like Gannett (NYSE:GCI). So, although BuzzFeed comprises some of the most visited media websites, it still faces a sea of competition.

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How BuzzFeed Got Started

BuzzFeed was founded in 2006 to track viral content, and it was initially just a collection of listicles on ways to cook bacon and quizzes to determine which Disney princess you are or which Hogwarts house you belong in.  It heavily depended on community involvement, much like HuffPost, which it inevitably bought.

And it often blurs the lines between news and entertainment, with media analysts pointing out its left-leaning tendencies across all three of its major brands. And it wasn’t just HuffPost and Complex that it bought out – prior to that, it acquired Kingfish Labs, a social advertising company, and Torando Labs, which became its data-engineering arm.

It now creates daily content across blogs, podcasts, and video channels. BuzzFeed is a big hit across social media too, and it received over $3 million from Facebook during its push toward Facebook Live in 2016. This is one of many partnerships the company forged through the years.

Harvesting free community labor while being paid by advertising partners is a key part of its business model, so here’s a deeper dive into how it makes money.

How BuzzFeed Makes Money

BuzzFeed has a variety of revenue sources, including ads, affiliate marketing, premium subscriptions, and other physical and digital products. In spite of the diverse revenue sources, the company wasn’t profitable from 2014 to 2020, according to The Wall Street Journal, and it has subsisted on investments like the $50 million it received from Andreessen Horowitz in 2013.

It also received a $200 million investment from NBCUniversal in 2015 that valued the company at $1.5 billion. This was around the time its Facebook Live video putting rubber bands around a watermelon went viral on Facebook. But Meta Platforms (NASDAQ:FB) was putting the squeeze on media companies during this period and that pressure catalyzed layoffs and cost cutting among traditional media outlets.

While BuzzFeed reached profitability n the past couple of years, Complex lost 14 percent off of its top line.

The SPAC deal was expected to net the company about $438 million in cash with a projection of $57 million in profits for 2021 and $117 million in 2022.

Things didn’t go well though.

Buzzfeed’s Chaotic Public Debut

Buzzfeed’s share price opened at $10.95 during its December 6 2021 SPAC debut and rose to $14.77 before crashing to $5.56 and struggling at that level for the rest of the week.

Former employees took to social media sites like Twitter (NYSE:TWTR) to complain about being unable to sell their vested Class B shares; the company blamed its third-party transfer agent.

Still, BuzzFeed CEO Jonah Peretti remains optimistic about the brand, as it’s the only Gen Z and millennial-focused media brand to go public in a year in which Vox Media, Vice Media, and Bustle all failed to complete SPAC mergers.

Investors who originally committed $288 million in cash pulled back 94 percent of their funding. The company raised about $16 million with $150 million in convertible debt. BuzzFeed continues to struggle to maintain a valuation anywhere close to its IPO price, hovering in the $4 range at this time.

It could regain luster moving forward with Complex and Tasty Brands on its side though.

BuzzFeed’s Financial Outlook

BuzzFeed generated $161 million of revenue in the first six months of 2021, and Complex generated $53 million in that time.

In the third quarter, it generated another $90.1 million. The company will likely generate well over $400 million in revenue for the year. Although margins are high, it only projects $57 million in profits even with the cash infusion.

Digital media has a lot of fans, and the trio of brands owned by the company still generate large swathes of younger traffic. That makes it prime real estate for advertisers.

Where Will BuzzFeed Revenues Grow?

One of the biggest hurdles for BuzzFeed to overcome is scale. It will have trouble sustaining its growth trajectory when it’s so dependent on advertising revenue. In its most recent quarter, $50.2 million came from ad revenue, while $26.5 million came from content revenue and only $13.4 million came from product licensing and other commerce.

BuzzFeed needs to further diversify if it wants to stay afloat while major ad platforms like Meta Platforms, Apple (NASDAQ:AAPL), and Alphabet (NASDAQ:GOOGL) continue taking a bite out of media revenues.

Is BuzzFeed Stock a Buy: The Bottom Line

BuzzFeed’s December 2021 public debut made the type of clickbait headlines the media giant itself popularized. As it transitions from a fluff site into serious journalism, it also faces challenging problems. The news industry has been getting hit for the past 20 years, and BuzzFeed was once one of the startup companies responsible for such disruption.

Now it’s becoming an old guard site, yet it still appeals to younger demographics. It’s the only digital media property you can invest in on the public market. If BuzzFeed can follow its own lead and find 12 new ways it didn’t know it could be profitable, it could make major gains for investors.

Based on a discounted cash flow forecast, BZFD share price has significant upside to $7.25 per share, representing 75% upside.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.