BuzzFeed has lost its buzz (NASDAQ:BZFD)

Spencer Platt/Getty Images News

by BuzzFeed (NASDAQ: BZFD) the stock price has seen a free fall since its SPAC in November 2021 where it traded at around $10 a share. Today, BuzzFeed is trading at just $1.50.

Revenue growth declines while net losses are enlargement – operating costs are increasing more aggressively than sales. Even at current prices, I don’t see BuzzFeed as an attractive investment. The outlook for the future looks bleak; new content isn’t resonating with consumers, and the company is battling a poor advertising backdrop.

BuzzFeed may seem cheap at 0.5x FY22 sales, but make no mistake – margins are moving in the wrong direction, with little evidence that will change as the company tries unsuccessfully to reverse the trend. steam. Sale.

Why did BuzzFeed stock fall?

BuzzFeed’s performance suffered the same fate as many other 2021 SPACs due to an overly optimistic (to put it lightly) initial assessment. Take a look at Bloomberg’s De-SPAC index to quickly gauge what I mean by this SPAC “destiny.”

Bloomberg De-SPAC Index Chart

Bloomberg

It is therefore not too surprising to see a significant slowdown in SPAC activity in 2022; the number of SPAC IPOs fell more than 80% in the first half of 2022 compared to the previous year.

For BuzzFeed shareholders before the IPO, it looks like they got the merger at the right time (before the big crumble). But even under more dovish SPAC terms, BuzzFeed had little demand from investors. When the company merged with blank check firm 890 Avenue Partners Inc, 94% of the money raised by SPAC was withdrawn as investors began to turn away from SPACs, leaving BuzzFeed with just $16 million. .

This general consensus movement foreshadowed what was to come, just nine months later and BuzzFeed stock price is down 84%. Like the initial assessment, BuzzFeed’s predictions were likely aggressive. The company expected a revenue CAGR of 25% per year through 2024. A year later and that expectation has been revised, the market now expects BuzzFeed to reach a CAGR of just 10% until in 2024. This slower growth came despite a surge in marketing spend. In the second quarter, BuzzFeed reported revenue growth of 20% while sales and marketing expenses increased by 61%. This was only slightly higher than the overall increase in total costs (47%). These higher costs led BuzzFeed to a net loss of $23.7 million.

Loss of drive traction

A key aspect of BuzzFeed’s business is the YouTube channel, and stats on this account can provide insight into the overall performance and traction of BuzzFeed content. Looking at subscriber numbers alone, it’s clear that for a long time, BuzzFeed has had exemplary and consistent channel growth.

Buzzfeed youtube subscribers graph over time

Trackalytics

But there’s been a noticeable slowdown in that growth since 2019. It looks like the BuzzFeed Channel is starting to come of age. 20 million is a lot of subscribers, but it means very little without similar levels of engagement

Graph of Buzzfeed YouTube ad revenue over time

Trackalytics

What precedes Trackalytics The feature gives estimates of ad revenue over time. Revenue estimates are very broad, but show a gradual decline in revenue since late 2018. Google trends tell a similar story.

Buzzfeed Google Trends since end of 2017

Google

Of course, these stats don’t completely reflect BuzzFeed’s performance, but they do give a good look at the brand’s potentially declining relevance.

Is BuzzFeed Undervalued Now?

The US and global economy is slowing and that’s not good news for BuzzFeed. Almost half of Q2 revenues came from advertising, so low forecasts were expected in this bad context (~6% growth expected in Q2 Y/Y).

BuzzFeed expects sequentially larger losses in the third quarter. The company guided adjusted EBITDA in the range of $5-10 million. Investors should also expect larger net losses, as stock-based compensation is expected to be between $3.5 million and $4.5 million.

BuzzFeed had $68 million in cash at the end of last quarter, down $6.35 million from the previous quarter. This means that the company is unlikely to completely burn through its cash anytime soon, but it does have $150 million in long-term debt tied to the convertible note issued in June 2021. This note has an interest rate of 8 .5%. This is due in 2026 and can be converted into common stock with an initial conversion price of $12.50 – making it highly unlikely to be the case. BuzzFeed may meet the obligations under this rating, but it creates a future roadblock if BuzzFeed is unable to generate positive cash flow over the next few years. Operating cash flow was -$4.9m in Q2.

Given this costly debt, mounting losses, and an uncertain economic backdrop, even at 0.5x sales, I don’t consider BuzzFeed to be undervalued at current prices.

The bottom line

BuzzFeed faces considerable headwinds related to its advertising segment. A dangerous crossroads is fast approaching, sales and marketing investments are needed to maintain brand relevance in the media arena, but it would also be beneficial to adjust variable spend to reduce losses given the headwinds. It’s a tough balancing act and I don’t think it’s worth exposing to BuzzFeed, Sell.

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