BuzzFeed fell 39% in its first week of trading, closing at $6.07 per share, an inauspicious start for the prospects of digital media companies on public markets.
But even if its valuation is disappointing, Buzzfeed’s debut gives peers something they didn’t have before: a public market valuation comparison.
“Digital media doesn’t really have comps,” BuzzFeed Chief Executive Officer Jonah Peretti told CNBC in an interview. “As far as digital media that reaches a millennial or Gen Z audience, we’re the only one that’s public.”
If BuzzFeed shares eventually skyrocket, peers such as Vox Media, Vice Media, Group Nine and Bustle Digital Group may try again to go public themselves. All four considered that route earlier this year, with varying degrees of seriousness. But when special purpose acquisition companies, or SPACs, lost their investment appeal around April, the industry pumped the brakes on plans to go public.
Only BuzzFeed succeeded, and it didn’t go particularly smoothly. Investors that originally committed $288 million in cash to the company’s SPAC pulled back 94% of it, instead of moving forward as BuzzFeed shareholders.
“We ended up talking to a lot of public market investors who said we aren’t going to invest in SPACs anymore, but we’re still interested in meeting with you, so we get to know who are you when you’re public,” Peretti said.
The key level for BuzzFeed will be $15 per share, said Bustle Digital Group CEO Bryan Goldberg. At $15 per share, BuzzFeed’s market capitalization would be about $2.25 billion. That approaches a trading multiple of four times revenue. BuzzFeed generated $161 million in revenue in the first half of 2021 and acquired Complex Media earlier this year, which brought in $53 million in the first six months.
Confidence in BuzzFeed’s future prospects may grease the wheels for consolidation. BuzzFeed will need outsider faith in its equity to use it as viable currency for acquisitions. If BuzzFeed can hold steady at a 4x revenue multiple, sellers will feel they’re getting a just price, Goldberg said.
“4x revenue should be the default,” Goldberg said. “But it may take six to eight months to get there.”
Fourth-quarter digital advertising revenue numbers won’t be good, Goldberg said. Supply chain disruptions have led to curbed advertising spending, he said. That may add pressure on BuzzFeed shares. A six-month lockup period for investors may also lead to a rush of selling when investors are free to sell, he said.
“I have a particularly informed view of what digital advertising sales are going to look like in the fourth quarter and in 2022,” Goldberg said. “I think digital advertising is going to have a rough Q4 2021. But I think 2022 is going to be clear skies.”
Recalibration can still help
Even if BuzzFeed doesn’t surge in value, digital media companies will be able to use it as a firm comparison in an industry that hasn’t had one. Peers may not be able to go public, but BuzzFeed’s stabilization at any price will give the industry a sense of what companies are actually worth.
“For the past five years, digital media has suffered from the absence of a publicly traded company,” Goldberg said.
During that time, BuzzFeed, Vox, Vice and Group Nine have held on-and-off merger talks with each other, in various combinations, according to people familiar with the matter. Having raised money at lofty valuations — $1 billion for Vox Media, $1.7 billion for BuzzFeed, and a whopping $5.7 billion for Vice Media — the companies need scale to prove to public investors and potential acquirers they can compete with Google and Facebook for advertising dollars.
Industry consolidation has been blocked by two factors: Agreement on value and founder ego.
Without a public market comparison, setting valuations have been leaps of faith. Vice Media has been the posterchild for inflated private valuation. While Vice valued itself at $3.6 billion in 2019, it tried and failed to go public this year when SPAC investors had little interest in the company. Valuing yourself when there are no viable exit strategies is a meaningless exercise — you can say your house is worth $278 million, but that doesn’t mean someone will pay that amount.
Maybe BuzzFeed can’t be used as an exact proxy for every digital media company, but it’s probably enough of an apples-to-apples comparison to make private-to-private deals more feasible.
The second problem is harder to resolve, since the leaders of almost all the major digital media start-ups all want to be the consolidators, rather than getting sucked up into a conglomerate run by somebody else.
Now that it’s public, BuzzFeed says it will begin rolling up the industry. But the speed of consolidation will depend on the personalities of those in charge, according to people familiar with the matter.
The major digital media players feel they have particular expertise in acquiring and integrating companies, said the people, who asked not to be named because acquisition discussions have been private.
Vox Media bought New York Media, the owner of New York Magazine, in Sept. 2019. Vice Media announced it bought Refinery29 for $400 million a few days later. A week later, Group Nine announced its deal for PopSugar. Bustle Media Group has bought a number of media companies, including Gawker, Mic, Nylon, The Outline and Flavorpill, in recent years. Goldberg told CNBC he plans to be a buyer, not a seller.
For its part, BuzzFeed acquired HuffPost in 2020 and bought Complex Networks for $300 million as part of its SPAC merger.
Then there’s a whole new crop of upstarts who may not play along. Companies like Axios and The Information don’t have the outsize obligations to investors that their venture-fattened peers do, and are finding steady subscription revenue. Their founders aren’t currently interested in acquisition offers on the strength of their own business models, according to people familiar with the matter. Startups like Punchbowl and Puck, which have few employees, may have little need to sell if they can sustain profitability through subscriber fees.
“BuzzFeed still has a lot of haters,” said one digital media executive, who asked not to be named to avoid possible retribution.
Still, many of those same competitors are now also rooting for BuzzFeed’s success. If BuzzFeed shares tick higher and management wins over Wall Street, they’ve got a lot more options.
“I’ve heard that from other company executives: We’re rooting for you,” Peretti said.
If shares don’t recover, Peretti will focus on running a profitable company and proving to Wall Street the value of digital media.
Goldberg, meanwhile, will be buying BuzzFeed shares.
“I just bought a f—ton of BuzzFeed shares at $6.00,” Goldberg said. “If it goes lower, I’ll really back up the truck.”