October 31, 2023

The Dismantling of BuzzFeed Has Begun

Tell me if you know this feeling, but you spend so much time preparing for something that when it finally happens and is done, you feel a bit low energy. That’s how I feel after the AMO Summit. It’s been the only thing I’ve thought about for months that now, I feel like there’s a hole. But it’s not enough to stop me from writing, so why don’t we jump right in.

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BuzzFeed prepares to sell assets

When BuzzFeed went public via a SPAC in late 2021, it merged with Complex to create a much larger company. The value of Complex at the time was $300 million and it was part of BuzzFeed’s quest to become as big as possible so as to compete with the major platforms.

Since then, BuzzFeed’s shares have cratered from $10 a share—the go public price of most SPACs—to $0.30. That’s a 97% drop in value and effectively takes a company that was once “worth” over a $1 billion to just $42.5 million. And that’s before taking into consideration the debt on its books. In other words, the company has more debt than it has value in stock and cash.

It’s in a rough position and I do not see it getting any better. That’s why it was entirely unsurprising to see The New York Times report:

Ntwrk, an e-commerce company backed by LiveNation Entertainment and Main Street Advisors, is close to paying less than $140 million for Complex, according to two people familiar with the deal. BuzzFeed paid about $300 million for Complex in 2021.

Buzzfeed is planning to keep First We Feast, the division of Complex responsible for the popular “Hot Ones” interview franchise, after the transaction, one of the people said. First We Feast, which has racked up billions of views on YouTube, will be a part of Buzzfeed’s portfolio of brands focused on food culture, including the recipe guide Tasty.

The deal is not done yet and, therefore, it could fall through. However, I think BuzzFeed was lucky that it was able to find a buyer for Complex minus First We Feast. But that’s about as much praise as I can offer. The “less than $140 million” is not even enough to cover all of the company’s debt. And the cost of that debt is starting to rise.

In the first six months of 2022, the company spent ~$9.8 million in interest. Fast forward to the first six months of 2023, and that was up to a little over $11 million.

At the same time, the cash position continues to deteriorate. According to its Q2 earnings result, it started the quarter with ~$57.8 million and ended with ~$41.3 million. The reality is, it’s continuing to aggressively burn through its cash with little hope on the horizon.

Back in March, I saw some hope with its accounts receivable. At the time, it had $116 million in outstanding accounts receivable. In other words, advertisers had run their campaigns, but had yet to pay their bills. If we look at Q2 2023, though, it was down to $70.8 million in outstanding AR. That’s a natural indication of the business continuing to generate less revenue and, therefore, having less to bill for.

If we look forward, I don’t anticipate Q3—which the company reports in a couple weeks—being all that much better. The question will be how much worse the cash position gets.

And so, the sale of Complex will certainly help, likely providing both a tax write off from the poor acquisition two years ago, and providing a chunk of cash to add to the books. But then what? It’ll make even less revenue, it’s valuation will be even lower, and we’re back to square one.

The reality is, BuzzFeed as a public media company has failed and the dismantling has begun. The question becomes what other assets will be sold. It wanted desperately to hold on to First We Feast, but if it can’t turn revenue around and cash continues to burn, it may need to sell that too.

And who knows? If the company can pay down a chunk of that debt, perhaps some enterprising investor will take the company private. There is an argument to be made that with all of that traffic and the 1st-party data it has, it might be better monetized with a stronger operating team. But that would require a particularly creative buyer.

WaPo learns it’s in the digital business

Things are not going all that well at the Washington Post, which should come as no surprise to anyone. As first reported by The New York Times, the company is projecting a loss of $100 million this year, which is why it’s been forced to reduce the team by 10%.

CNN’s Reliable Sources has additional details on what’s going on:

Some of the problems stem from The Post’s declining audience. Stonesifer disclosed that the publication’s readership has plummeted since Trump’s White House exit, with its digital audience sinking by a staggering 28% since 2021. Digital subscriptions, Stonesifer added, had dropped 15%.

Audience is down. Digital subscriptions are down. Ad revenue, I suspect, is also materially down if the Washington Post is anything like the rest of media. And so, it should come as no surprise that the business is in a bad place.

What does come as a surprise is the company’s sudden realization that it is in the digital, not print, business. According to that same issue of Reliable Sources:

During the meeting, Buzbee said that The Post needs to be wholly committed to building workflows centered on its digital presence. In other words, the primary emphasis should no longer be on the print edition that has typically been the focal point throughout its history. The Post, she added, needs to be more engaging for new audiences and improve its offerings to maintain them.

I’m sorry, what? You are owned by the most successful internet entrepreneur in the world and you only realize today, in 2023, that you are a digital business? You only now realize that you need to be building workflows centered on your digital presence. Excuse me… I’m just flabbergasted.

What’s ironic is that this is exactly what The New York Times started doing over a decade ago. It realized that its print business was going to be in decline, so it needed to manage the transition to digital. This is also what Will Lewis, former CEO of Dow Jones, did with The Wall Street Journal from 2014 – 2020. He is now, reportedly, one of the last two candidates standing for the new Washington Post CEO job. Whether he gets it is anyone’s guess.

Suffice it to say, the Washington Post has a lot of work ahead of it. Print can still be a money maker, but you need to realize that you are operating print for the cash flow to help invest in the digital business. And at some point, you start cutting that product as it goes to zero. Only realizing that now means The Post is operating from a serious deficit to its competitors.

The next couple of years are going to be very interesting as the company executes on this “digital first” strategy.

Thanks for reading today’s AMO. Please hit reply if you have any thoughts. As I said above, become an AMO Pro member to start receiving a second edition of AMO. And I hope you have a great rest of you week!