March 29, 2022

BuzzFeed Fumbled, But It’s Still Early Days

Going public can be a blessing and a curse, depending on how your business is doing. In the case of BuzzFeed, it may look more like a curse. When BuzzFeed went public back in December, I wrote that the company had stumbled, but it hadn’t fumbled:

Honestly, I think getting past this is the best thing that can happen to BuzzFeed. Now they’re public. Early market reactions (the stock was down 11% in first-day trading) are pretty irrelevant. Now all they have to focus on is executing. Whether right or wrong, the team will be judged by the public markets.

The next 6-12 months of BuzzFeed’s performance are important for these other media companies. If BuzzFeed is able to hit its goals and the stock starts to rise, then investors may become more interested in these other digital media players. If, however, BuzzFeed does ultimately fumble, an easy exit may not exist.

Despite its quarterly results, I would argue that it remains a blessing that BuzzFeed went public. But it needs to make hard decisions. While it might be controversial, its recent decision on BuzzFeed news was the right one for the business.

But first, let’s take a look at the quarterly and full-year numbers. In Q4 2021, it had:

  • Revenue: $145.7 million, up 18% YoY
  • Ad Revenue: $69.1 million, up 24% YoY
  • Content Revenue: $59.9 million, up 33% YoY
  • Commerce Revenue: $16.7 million, down 26% YoY
  • Net Income: $41.6 million, up 29% YoY

And if we look at the full-year numbers, we see that it ultimately failed in delivering on what it pitched to investors in its SPAC presentation.

  • Revenue: $397.6 million actual versus $521 million estimated
  • Ad Revenue: $205.8 million actual versus $261 million estimated
  • Content Revenue: $130.2 million actual versus $165 million estimated
  • Commerce Revenue: $61.6 million actual versus $95 million estimated
  • Net Income: $25.9 million
  • Adjusted EBITDA: $45.1 million actual versus $57 million estimated

Suffice it to say, BuzzFeed was feeling way more bullish about its business when it was preparing its SPAC presentation compared to where the company ended the year.

There are a variety of excuses to explain why the company came in so low. One reason could be that revenue could be down 26% YoY in Q4 because we were dealing with intense supply chain issues at the time. Another possible excuse is that the Complex integration is taking longer than anticipated (though the Complex deal didn’t close until the SPAC merged, which was December, so that’s not a great one). But, ultimately, I think the SPAC presentation assumed perfection, and it’s hard to be perfect in an execution business.

Looking forward to Q1 2022, BuzzFeed is expecting revenue to be down by a low single-digit percentage year-over-year. In this case, management is pointing the finger squarely at Complex. In a press release, management wrote, “on a reported basis, excluding Complex Networks in the year-ago first quarter, we expect revenues to grow by approximately 30%.”

It will take time to complete the integration, for the synergies to be realized, and for the business to hopefully start climbing out of the massive hole that it’s in.

One of the first steps to realizing this is the necessary decision to start downsizing BuzzFeed news. According to CNBC:

BuzzFeed News, which is part of its content division, has about 100 employees and loses roughly $10 million a year, two of the people said. The company, which also has advertising and commerce divisions, said Tuesday its full-year content revenue grew 9% in 2021 to $130 million.

One shareholder told CNBC shutting down the newsroom could add up to $300 million of market capitalization to the struggling stock.

Losing $10 million a year when your full-year net Income is only $25.9 million is not a good use of resources. While I disagree with the notion that it’ll add $300 million of market capitalization, I believe the instinct is right that it would show a change in narrative for the business. And much to value investors’ dismay, so much of investing is about having the right story.

Here’s the reality for BuzzFeed… The news business is tough to monetize successfully. Some try, and there have certainly been wins, but let’s look at the biggest winners in the hard news category: NYT, FT, Bloomberg, WSJ, WaPo, The Guardian, etc. These are all publications with decades, if not 100+ years of experience.

The actual journalism may have been great, but there was no business model. I visited the site today and all I saw were programmatic ads. Brands have difficulty justifying running ads around hard news, which is why brand-safe software does so well. Look at how Applebee’s had to apologize for its ad running against coverage of the war in Ukraine. One might consider that Applebee’s was funding journalism, but no, it needed to apologize.

Alas, perhaps BuzzFeed could afford to invest in its news product when it was raising a ton of money from VCs that only cared about top-line growth. But now that it is expected to grow revenue and profit rather than just revenue, it needs to think long and hard about costs. $10 million in yearly losses is not acceptable for the business now.

Compare News to the “short-form vertical video” that the company wants to invest in, and it’s just night and day. One fits its DNA; the other doesn’t. It’s disappointing to see, but BuzzFeed should have never got into the news business, even if the actual reporting was excellent. As a result, I imagine more employees will leave BuzzFeed News over the coming months.

As for BuzzFeed, hopefully, it can fix its narrative. It has undoubtedly been a fumble these past few months, but it has control over its destiny so long as it remains profitable.

Vox gives CRO subscriptions

With Vox merging with Group Nine, some of the first significant changes in the executive team are taking place. According to Adweek:

Vox Media announced Friday morning that it is expanding the role of its chief revenue officer Ryan Pauley to reflect the new business capabilities of the publisher following its merger with Group Nine Media.

“Historically, advertising and subscriptions have had separate leaders because they require different kinds of planning,” Pauley said. “But there is a lot more interplay between them now, so when it comes to making trade-offs between the two, having them under a single leader creates a single point of accountability.”

Pauley is correct that the planning for the two teams required fundamentally different thinking. Subscription (or circulation as it was once referred to) was a marketing function, trying to develop strategies to get people to sign up. On the other hand, advertising has always been very myopically focused on building relationships with ad partners. Sales more than marketing, one might say.

However, they are often complementary rather than truly competitive functions in the digital age. For example, the best ad products depend on the high-quality data that comes from a subscription business.

You need to think about monetizing users entirely rather than prioritizing one business model over the other. If, for example, a user is better suited to being monetized with a subscription, push that message forward and vice versa.

In January, the Washington Post made the same decision when it gave Joy Robbins, the CRO, oversight of subscriptions. In an announcement, Robbins said:

“There is tremendous opportunity in coordinating our revenue strategy to focus on our audience and the experience of being a Washington Post subscriber,” said Robins. “When we align our business approach with the reader, we build a stronger offering that will positively impact both our subscription and advertising businesses.”

She’s right. As time goes on, I expect more media companies that offer advertising and subscriptions will make the same decision as Vox and WaPo did.

AMO Podcast: Adam Ryan from Workweek

The AMO podcast is back, sponsored by Omeda! In this week’s episode, I spoke with Adam Ryan, the CEO of Workweek. We discussed how he and the team are building Workweek, its approach to lead generation that puts the user first, and why they decided to launch a venture fund.

Be sure to give it a listen wherever you listen to podcasts:

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