October 27, 2020

BuzzFeed’s Repeat Reminder That it Might Breakeven This Year

For the first time since 2014, it appears that BuzzFeed might actually break even this year. According to The Wall Street Journal:

What was left unsaid is how BuzzFeed got there. Revenue is expected to come in significantly lower this year than in 2019, according to people familiar with the company’s performance, largely because of severe pressure on the advertising market in the early days of the coronavirus crisis.

But BuzzFeed more than offset that decline with around $30 million in cost cuts, through a mix of furloughs, pay reductions, layoffs and other changes meant to stabilize the company’s finances through the pandemic, the people said.

That belt-tightening is part of a greater reckoning for the once-highflying digital media startup, whose board had become increasingly frustrated with slowing growth and persistent losses in recent years, the people said. Over the past two years, the company has reduced costs by as much as $80 million, they said.

It’s good that the business might break even, but we’ve also been here before. Last year, The Information also wrote a story about BuzzFeed, which said the same thing.

Thanks in part to its growing commerce business, the company expects to break even this year and return to profitability next year, according to people familiar with the situation.

Revenue is growing, but last year it laid off 15% of its 1,300-person staff to cut costs.

So, look… It is great that the company is going to break even and perhaps hit profitability at some point, but there’s an underlying story here that I think is important to look at.

Last year, BuzzFeed did $320 million in revenue. Because of Covid, they expected the company would do closer to $250 million, but with ad markets returning, the loss in revenue isn’t as significant as was originally expected.

However, the reality is, the company’s not growing at all. According to a recent story on The Information:

In recent years it has pivoted more into e-commerce. Even so, its revenue barely grew between 2017 and 2019, hovering a little above $300 million. It hoped to turn a decent profit this year, but Covid-19 dashed those expectations.

This is the real story of BuzzFeed. It’s a stagnant media company that has not found any way to continue growing while, at the same time, carries a huge amount of cost and a valuation that it’ll never be able to fulfill. It’s good that it’s finding a way to break even by cutting costs, but what then?

Let’s imagine the company continues to flatline, or at best, grows revenue just a little year after year. It might start to generate a small profit. But I have a hard time seeing it reach the point of generating a 10% profit margin. There’s no real exit in this case. Not big enough to go public; not small enough to get acquired.

Its investors have invested hundreds of millions into the company and many of them may never see that money returned.

But I have a theory…

In late 2018, BuzzFeed’s Jonah Peretti started lobbying for a slew of mergers to take place between digital media companies with the goal of stealing ad budget away from Google and Facebook.

In 2019, conversations about a possible merger with Group Nine broke down over leadership discussions. But the narrative still came out that the company was nearing breakeven.

Now in 2020, BuzzFeed is, once again, in the press about reaching breakeven.

My guess? It’s trying to make itself look good for one of these recently launched media SPACs. As I wrote a few weeks ago:

And this won’t be the last media deal to happen. Eric Peckham has this spreadsheet looking at SPACs focused on media, entertainment and gaming companies. If you add it up, that’s nearly $3.7 billion in capital waiting to be deployed to acquire companies.

So, if we look at the various SPACs that are currently available, there are a few that fit the sweet spot for an acquisition price. Assume BuzzFeed is worth 2-3x revenue (hard to imagine, but let’s just say it’s true). At $300 million of revenue, that means the company is worth anywhere from $600-900 million.

SPACs like to acquire companies that are 2-4 times its IPO proceeds. Using Eric’s spreadsheet, Falcon Capital Acquisition is an interesting opportunity. It has raised $300 million and it wants to invest in “businesses in the media, digital media/consumer technology, interactive entertainment and related industries.” At $600-900 million valuation, that 2-3x the size of Falcon Capital Acquisition.

Now I’m not saying that this is going to happen because I honestly have no idea. But at some point, BuzzFeed has to look itself in the mirror and determine what the future looks like. The great narrative that it once had is gone. Now it’s stuck in the middle of the media barbell with very little enticing prospects.

I can’t help but feel like BuzzFeed will be a target for a SPAC business.

Bloomberg unifying sub/ad processes

Media businesses tend to be pretty siloed. The advertising team is separate from the subscription team and they tend to have competing priorities; sometimes to the detriment of total revenue. In the spring, I discussed this idea of creating a revenue server to maximize returns:

What if there was a system that would allow us to get that clean picture? It’s not an original phrase, but we’re going to call this the “revenue server.” Unlike an ad server, which is trying to maximize ad revenue, or your registration software, which is trying to get more conversions, this is a central system that gives a single view on the user so you know whether you’re truly monetizing them most efficiently.

In other words, it’s a user monetization system versus a tactical monetization system. It’s trying to identify what types of users you have and the right ways to monetize them.

While not exactly the same thing, Bloomberg recognized the need for its two major revenue streams to work together rather than in competition. And with that silo broken down, it’s starting to increase experimentation. This story on Digiday digs into it more:

Bloomberg Media has spent 2020 figuring out how the infrastructure it’s built for its subscription business can support its advertising business, and vice versa.

To accomplish that, Bloomberg Media’s ad operations team has begun using an A/B testing tool called ABBA, originally built in-house to support Bloomberg’s subscription business, to support the ad team’s work of optimizing its products and campaigns. The data infrastructure that Bloomberg Media’s advertising team uses to identify audience segments for campaigns is now used to build segments used to market to would-be subscribers. The business news publisher’s product teams are also building internal dashboards meant to help both groups understand the impact their products or changes will have on both lines of business.

This is exactly what you want to see. The two departments are now supporting each other rather than competing, which only helps the overall Bloomberg organization.

Compare that to other legacy media companies that have internal battles about whether the priority is increasing pageviews for ad impressions or gating more content to get people converting.

I recognize that Bloomberg is obviously a much larger organization than many of the publications that read A Media Operator. But there are some lessons that can be taken here.

The first is simple… Maximizing revenue is more important than any one product being prioritized. Too often, I’ve seen organizations push certain products over others because of internal politics.

Second, there is a need to experiment with things. This can be trickier because many of our organizations don’t have deep benches of product and engineering resources. But setting KPIs against various ad units could inform whether something is working. Identifying underperforming products and removing them is important to maximizing our relationship with partners.

Too often, we set things up and then forget them. Some work we do has to be innovation—launching new things. But some of it just has to be evolution—current things changing. This is how you can incrementally improve the business while also building new, exciting features.