BuzzFeed was once the empty-calorie, sugary glue that held the internet together.
In many ways, BuzzFeed was the perfect name for the peddler of inoffensive listicles and memes; there was a certain endorphin rush associated with coming across the perfect top-10 list for you.
Friends fan? How about the most INSANE Joey moments from season six?
Cat lover? This stray was taken in by a dog family. What happens next will SHOCK you! And so on.
Such was the popularity of this lighthearted, easily digestible content that started attracting impressive funding rounds in the mid-2010s.
Tech-focused venture fund Andreessen Horowitz (aka a16z) injected US$50mln into the group in 2014 at a US$850mln valuation.
Around the same time, BuzzFeed was reportedly gunning for a US$1bn sale to Walt Disney (NYSE:DIS).
One year later, NBCUniversal signed off on a massive US$200mln investment, only to double that in 2016, thus valuing the group at a thumping US$1.7bn (FYI: NBC parent Comcast (NASDAQ:NASDAQ:CMCSA) offloaded 20% of its stake in February 2023.)
The native advertising approach favoured by founder Jonah Peretti (also famous for co-founding The Huffington Post) had paid off in spades.
Instead of clogging the site with irritating pop-ups and AdSense windows selling shoes you already bought two weeks ago, native advertising places sponsored content nicely alongside non-sponsored articles.
At face value, ‘41 Products Under £10 To Make You Feel Like Spring Has Sprung’ appears on-brand for BuzzFeed, hence why paid-for bait-and-switches of this calibre worked.
Not that there’s anything wrong with that; it certainly makes for a cleaner user experience than scanning the 20th pop-up for a tiny close button.
Source: BuzzFeed.com
As part of its quest for global domination, BuzzFeed spun out its journalism department into the stand-alone BuzzFeedNews.com domain in 2018.
BuzzFeed News is/was a mixture of incessantly woke grandstanding, oddly combined with an almost Daily Mail-esque thirst for celebrity gossip, interspersed with some genuinely great reporting.
The plan was to leverage clickbait revenues to subsidise BuzzFeed News reporting and investigatory output.
It appeared to be working. The site’s coverage of human rights abuses against the Uyghur population in China won a Pulitzer prize, while its breaking of the FinCEN Files in collaboration with the International Consortium of Investigative Journalists won worldwide praise.
But scroll forward to today, BuzzFeedNews.com is winding up and Buzzfeed Inc (NASDAQ:BZFD) is not worth US$1.7bn. It’s not even worth US$100mln.
At the time of writing, Nasdaq-listed BuzzFeed had a market capitalisation of just US$75mln, while shares were trading at 54 cents apiece.
Per listing rules, BuzzFeed has 18 more trading days to bring its share price above one dollar or face the prospect of being delisted entirely.
What happened? Sure, shifts in consumer trends, a move towards paywall-based models, and Facebook’s pivot away from curated content to “more meaningful interactions” deserve some of the blame.
The rise of Facebook (NASDAQ:META) and BuzzFeed were intrinsically linked, feeding off each other for clicks and views.
It appeared to be a perfect symbiotic relationship, until Facebook moved away from pushing external links into the algorithmic machine in favour of visual-based content.
But is BuzzFeed simply a casualty of the turn of internet tides, or is there more going on under the hood, financially speaking?
890 SPAC and the Complex Networks acquisition
BuzzFeed went public in December 2021 through a reverse merger with the 890 5th Avenue Partners SPAC.
In a reverse merger, a private company (BuzzFeed) subsumes a publicly listed company (890) as a quick and easy way to go public.
They’re akin to the McDonald’s of IPO, and generally regarded with the same degree of disdain.
As part of the reverse merger with 890, BuzzFeed agreed to buy Complex Networks – an entertainment network that includes the excellent First We Feast brand – for US$300mln, made up of US$200mln in cash and US$100mln in equity.
890 had US$288mln worth of cash held in trust prior to the reverse merger. That’s US$288mln that BuzzFeed was hoping to subsume upon completion of the merger.
Instead, as shown in SEC filings, it received just US$16mln from the reverse merger, as over 90% of the SPAC’s shareholders chose to redeem their shares prior to the combination.
In simple terms, this meant each individual BuzzFeed share was worth significantly less than initially hoped for.
890 entered into a letter agreement with its initial stockholders (i.e. 200 Park Avenue Partners, NBCUniversal chair Linda Yaccarino, and certain affiliates of 890) to waive their redemption rights, but this only accounted for 3% of Class A shares.
Public holders, as the overwhelming majority of 890 shareholders were, had a right to exercise their redemption rights, which they did en masse.
BuzzFeed shares lost 40% of their market value in the first week of trading from December 6, 2021, stretching to nearly 50% by the end of the year.
Now they’re worth barely 5% of their initial IPO value.
SPAC redemptions are expected, but this was a massive blow to BuzzFeed’s credibility, and the significantly lower-than-expected SPAC cash injection had put BuzzFeed in a tight financial position.
Meanwhile, the Complex Networks acquisition was starting to look less attractive.
Going back a bit to July 2016, Complex Networks entered into a licensing agreement with a Verizon (NYSE:VZ) subsidiary (dubbed the go90 agreement) whereby Complex Networks started producing and licensing original content for an exclusive license period.
This agreement was partially terminated in 2021.
It is unclear whether BuzzFeed expected this or not, but the figures point to a significant chasm caused by the Verizon split.
In the third quarter of 2022, revenues at Complex Networks grew 9%, but excluding the impact of the go90 cancellation, revenues would have grown 40%.
Net losses for Complex Networks in the quarter was US$3.1mln while adjusted EBITDA was just US$300,000.
Since BuzzFeed does not separate Complex Networks’ revenues in its earnings reports, it is unclear what the revenue mix currently stands at, but wisdom has it that Peretti would be inclined to boast of a lucrative acquisition if it actually were one.
What is BuzzFeed’s position now?
BuzzFeed’s cash position is a ticking time bomb.
As it stands, the group has US$56mln in cash and a requirement under lending covenants to retain US$25mln on hand at any time. Under covenants, lenders may exercise their right to the assets securing the loans.
Assuming a continuation of cash flow trends, BuzzFeed’s cash runway up to the point of a covenant breach is around 12 months.
As of December 31, 2022, BuzzFeed had US$152.3mln of outstanding debt.
The clock is also ticking to get shares back above a dollar.
If you think they can, then there’s a stunning buy opportunity on your hands, given the incredible 0.18 price-to-sales ratio.
But there’s a sense that the odds are stacked against BuzzFeed, making Peretti’s next move about as high stakes as it gets. With over 70% of voting power (another consequence of the large-scale SPAC redemptions), he holds all the cards.
First-quarter results are due on Tuesday, May 9. As a typical BuzzFeed article would say what happens then might shock you!
Proactive has reached out to representatives from BuzzFeed, Complex Networks and 890 for a comment.