BuzzFeed CEO Jonah Peretti is facing the Nasdaq market in Times Square as the company announces a merger with a special purpose acquisition company on December 6, 2021 in New York City.
Spencer Platt | Getty pictures
BuzzFeed fell 39% in its first week of trading, closing at $ 6.07 per share, an unfortunate start to the outlook for digital media companies in public markets.
But while the appreciation is disappointing, Buzzfeed̵[ads1]7;s debut gives peers something they did not have before: a public market valuation comparison.
“Digital media doesn’t really have comps,” BuzzFeeds CEO Jonah Peretti told CNBC in an interview. “When it comes to digital media reaching a millennium or Gen Z audience, we’re the only ones in public.”
If BuzzFeed shares eventually skyrocket, peers like Vox Media, Vice Media, Group Nine and Bustle Digital Group could try to become public themselves again. All four considered that route earlier this year, with varying degrees of seriousness. But when specialty acquisition companies, or SPACs, lost their investment appeal around April, the industry put the brakes on plans to make it public.
Only BuzzFeed succeeded, and it did not go particularly smoothly. Investors who originally pledged $ 288 million in cash to the company’s SPAC withdrew 94% of it, instead of moving on as BuzzFeed shareholders.
“We ended up talking to a lot of public market investors who said we’re not going to invest in SPAC anymore, but we’re still interested in meeting you, so we’ll know who you are when you’re in public,” Peretti said.
The key level for BuzzFeed will be $ 15 per share, said Bustle Digital Group CEO Bryan Goldberg. At $ 15 per share, BuzzFeeds’ market capitalization will be around $ 2.25 billion. It is approaching a trading multiple of four times income. BuzzFeed generated $ 161 million in revenue in the first half of 2021 and acquired Complex Media earlier this year, which generated $ 53 million in the first six months.
Confidence in BuzzFeed’s prospects can lubricate the wheels of consolidation. BuzzFeed will need outside belief in equity to use it as a viable currency for acquisitions. If BuzzFeed can stay stable on a 4x revenue multiple, sellers will feel they are getting a fair price, Goldberg said.
“4x income should be standard,” Goldberg said. “But it can take six to eight months to get there.”
Digital advertising revenue figures in the fourth quarter will not be good, Goldberg said. Disruptions in the supply chain have led to reduced advertising costs, he said. This could put pressure on BuzzFeed shares. A six-month lock-in period for investors could also lead to a rush to sell when investors are free to sell, he said.
“I have a particularly informed view of what digital advertising sales will look like in the fourth quarter and in 2022,” Goldberg said. “I think digital advertising is going to have a rough 4th quarter 2021. But I think 2022 is going to be clear skies.”
Recalibration can still help
Even if BuzzFeed does not rise in value, digital media companies will be able to use it as a solid comparison in an industry that has not had one. Peers may not be publicized, but BuzzFeed’s stabilization at all costs will give the industry a sense of what companies are actually worth.
“For the past five years, digital media has suffered in the absence of a listed company,” Goldberg said.
During that time, BuzzFeed, Vox, Vice and Group Nine have held off-and-off merger talks with each other, in various combinations, according to people familiar with the matter. After raising high-value funds – $ 1 billion for Vox Media, $ 1.7 billion for BuzzFeed and as much as $ 5.7 billion for Vice Media – companies need scale to prove to public investors and potential buyers that they can Compete with Google and Facebook for ad dollars.
Industry consolidation has been blocked by two factors: agreement on value and founder ego.
Without a public market comparison, setting valuations has been a leap forward. Vice Media has been the poster child for inflated private valuation. While Vice valued itself at $ 3.6 billion in 2019, it tried and failed to be listed this year as SPAC investors had little interest in the company. Valuing yourself when there are no viable exit strategies is a pointless exercise – you could say your house is worth $ 278 million, but that does not mean anyone will pay that amount.
BuzzFeed may not be used as an exact proxy for all digital media companies, but it’s probably another apple-to-apple comparison to make private-to-private deals more feasible.
The second problem is more difficult to solve, since the leaders of almost all the major digital media start-ups all want to be the consolidators, rather than being sucked into a conglomerate run by someone else.
Now that it’s public, BuzzFeed says it will start rolling up the industry. But the speed of consolidation will depend on the personalities of those responsible, according to people familiar with the matter.
Jonah Peretti, Founder and CEO of Buzzfeed; co-founder of the Huffington Post
Allowed from Ebru Yildiz / NPR
The major digital media players feel that they have special expertise in acquiring and integrating companies, said the people who asked not to be named because the acquisition discussions have been private.
Vox Media acquired New York Media, the owner of New York Magazine, in September 2019. Vice Media announced that it had acquired Refinery29 for $ 400 million a few days later. One week later, Group Nine announced its deal for PopSugar. Bustle Media Group has acquired a number of media companies, including Gawker, Mic, Nylon, The Outline and Flavorpill, in recent years. Goldberg told CNBC that he plans to be a buyer, not a seller.
BuzzFeed, for its part, acquired HuffPost in 2020 and acquired Complex Networks for $ 300 million as part of the SPAC merger.
Then there is a whole new amount of upstarts who may not play. Companies such as Axios and The Information do not have the large obligations to investors that their venture-minded peers have, and find stable subscription revenues. Their founders are currently not interested in takeover bids due to 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 maintain profitability through subscription fees.
“BuzzFeed still has a lot of haters,” said a digital media leader, who asked not to be named to avoid possible retaliation.
Still, many of the same competitors are now also rooting for BuzzFeeds’ success. If BuzzFeed shares tick higher and management wins over Wall Street, they have many more options.
“I have heard it from other business leaders: We applaud you,” Peretti said.
If the stock does not recover, Peretti will focus on running a profitable company and proving to Wall Street the value of digital media.
Goldberg will meanwhile buy BuzzFeed shares.
“I just bought a ton of BuzzFeed shares for $ 6.00,” Goldberg said. “If it goes lower, I’ll really back up on the truck.”
SEE: BuzzFeed CEO Jonah Peretti on SPAC merger