BuzzFeed Is Not About to Go Out of Business
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BuzzFeed reported its Q4 and full year 2022 earnings last week. This is its first full year since it acquired Complex and went public via a SPAC. The top-line statement worth calling out is that BuzzFeed didn’t have a great Q4. Revenue was down 8% year-over-year. But when we think about the state of media overall, maybe that’s not so bad.
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Now let’s jump in…
The saving grace for BuzzFeed was its “Commerce and Other” revenue, which it classifies as revenue associated with its affiliate marketplace, product licensing and events. While advertising and content revenue were down 27% and 9% respectively, commerce and other revenue was up 76%—from $16.6m in Q4 2021 to $29.3m in Q4 2022.
The bigger problem for BuzzFeed is that people are just not as engaged with its content as they used to be. According to the company’s press release, “Growth in Time Spent on our owned and operated properties was more than offset by declines on third-party platforms, resulting in a 27% decline in overall Time Spent, to 135 million hours.”
But one thing I heard from a few different readers was commentary on BuzzFeed’s cash situation. According to the earnings announcement, the company has $55.7m in cash on hand. This is down from $79.7m from a year prior. There’s no denying that BuzzFeed continues to burn cash as you can see here:
- Q4 2021: $79.7 million
- Q1 2022: $74.5 million
- Q2 2022: $68.2 million
- Q3 2022: $59.4 million
- Q4 2022: $55.7 million
The average quarterly drop in cash was -8.53% and the burn from Q4 was only -6.23%. You could argue it’s slowing down, but it’s moderate deceleration. BuzzFeed has a cash flow problem. Looking forward, I don’t anticipate the cash position getting much stronger either.
According to BuzzFeed, it estimates Q1 revenue of $61-$67 million. If we take the average 2022 cost of revenue, we can estimate this will cost BuzzFeed anywhere from $38.8-$40.3 million. Once we factor those costs, BuzzFeed is left with anywhere from $22.2-$26.7 million to run the business.
That, alone, would raise an alarm for me.. In Q4, BuzzFeed spent $25.3 million on general and administrative costs alone. With other expenses like sales & marketing and research & development, we’d expect to see significant cash burn.
So, why am I not concerned?
It has $116 million in outstanding accounts receivable. This AR was booked in 2022, but due to payment terms, likely doesn’t pay until Q1 and, in some cases, beyond that. Therefore, while Q1 2023 is going to be a weak quarter for BuzzFeed, from a cash perspective, it’ll have money coming in to handle the bills.
Then there are the layoffs. Back in December, BuzzFeed announced that it was reducing the size of the company by 12%. According to Variety:
The bulk of BuzzFeed’s layoffs occurred Dec. 6, with only a few cases of severance extending into 2023, according to the company. Restructuring charges are anticipated to be between $8 million to $12 million, recognized primarily in the fourth quarter of 2022.
The question is: were the layoffs enough? With a pullback in revenue, probably not. It’s unlikely to be cash flow positive in Q1 even with the outstanding accounts receivable and the layoffs. If things get particularly bad, BuzzFeed does have a credit facility. In Q4, for example, it borrowed $5 million.
With all of this in mind, it’s clear that while BuzzFeed is still very much a struggling business, it’s not one about to go out of business. It has cash coming in, though quarterly burn still exists.
But this is an important point to make. It is easy to fall into the trap of looking at revenue, EBITDA, net income, net losses, etc. to judge the health of a business. At the end of the day, though, the only thing keeping the lights on is cash. You can’t pay the bills with anything but cash.
Publishers avoid selling their own products
Digiday conducted a survey asking 112 publishers about the trend in selling products. The results were interesting.
Overall, Digiday’s survey found that 46% of publishers get at least a very small portion of their revenue from selling products. But that number has been consistently falling over the last year. Six months ago, 54% of publishers said they got at least some of their revenue from selling products, and a year ago, 60% said this.
Just as with publishers who make money from selling products, the percentage of publishers who plan to put at least a very small focus on this part of their business has been falling for the last year, with a big drop-off occurring in the last six months. As of Q1 of this year, 46% of publisher pros told Digiday they will put at least some focus on selling products in the next six months. In Q3 of last year, that percentage was a full two-thirds (66%), and a year ago it was 70%.
As Digiday finds, affiliate marketing is much more interesting to these publishers than selling their own products. This isn’t terribly surprising. Coming up with products that resonate with an audience is hard. And for many publishers, it’s not in their core skill set.
But I think publishers that have a relationship with and a deep understanding of their audience are making a mistake not leaning into this. Sure, if the bulk of the people that visit your site are flyby traffic, then prioritizing advertising and affiliate marketing makes a lot of sense. But if you’re turning traffic into an audience, why wouldn’t you want to more directly monetize these users?
I think about this strategy as a three-step process.
First is affiliate marketing. This is the best way to test what your audience cares about. If you find them purchasing things thanks to your recommendations, you can use that data to inform what they might be interested in.
Second would be more integrated relationships with the affiliate partners. Too often, publishers allow Amazon or another major network to be their middleman. But if you are pushing serious products for these brands, they will likely be willing to do direct affiliate deals with you.
Third is your owned products. Food52 has historically done this in a very interesting way by including the audience in the product development. They survey the audience, understand what their pain points are, and then create products accordingly. I’ve long joked that their kitchen towels are one of the greatest inventions on the planet, but they isolated a pain point—non-absorbent dish towels—and created something.
But this does require a different skill set. The media company is, in many respects, evolving into a niche retail operation. But why wouldn’t you? If you have the audience and you know how to activate it, this can be a strong extension of the brand.
My suspicion is that with where the economy is, publishers are taking their foot off the gas specifically to manage resources. The question is, when things start to get stronger, will publishers come back? If they have a legitimately engaged audience, I very much hope so.
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