Should You Invest in BuzzFeed IPO in 2018?
Now we’ll be seeing one of the largest new-age digital media empires taking to the market, the first to do so. Vox Media, Inc. and Vice Media LLC, two other companies known for their success in the digital media space, will be watching closely to see how BuzzFeed stock performs when it hits the markets. The buzz about the possible BuzzFeed IPO 2018 first arose at the end of March, so there will be plenty of time between now and the IPO date for other companies to also throw their hats into the IPO ring. (Source: “Scoop: BuzzFeed going public in 2018,” Axios, March 29, 2017.)
Now I’m sure you’e wondering: how will BuzzFeed stock perform? Most importantly, should you invest in the BuzzFeed IPO in 2018 if and when it happens?
To answer that question, let’s take a look at the company and the particulars surrounding a billion-dollar empire that was erected on the backs of viral animal videos.
But I shouldn’t sell BuzzFeed short. The company has come long way from its viral video roots. While the company still draws in hordes of viewers with hits like “Drunk Girls Get Surprised With Puppies” (currently sitting at more than 11 million views on YouTube), the company has diversified by adding investigative, in-depth reporting to its repertoire.
While a large portion of its ad revenue is still derived from those made-for-social-media blog posts and videos, the company has made headway in creating a more serious news division behind the multi-million-view cutesy videos.
But we’ll talk about all the particulars of what BuzzFeed is and isn’t later in this piece. First let’s get to the tale of the numbers.
BuzzFeed has a valuation of $1.7 billion as of its most recent funding round. The company employs 1,300 people worldwide and has seen itself expand with a number of acquisitions. But those high figures disguise a hurting core; while revenue numbers have yet to be released for 2016, the 2015 earnings were damaging to the company, and by extension may hurt the BuzzFeed IPO value.
BuzzFeed pulled in about $170.0 million in revenue in 2015, falling well short of its $250.0-million projection. That, in turn, led to a slashing of the 2016 target from $500.0 million to $250.0 million. This is hardly the type of momentum that a company wants on its way to an IPO. Jonah Peretti, however, has claimed that the company did, in fact, hit its revenue projections, so it’s a bit of a he said, she said case. (Source: “BuzzFeed missed 2015 revenue targets and slashes 2016 projections,” CNBC, April 12, 2016.)
Revenue troubles or not, that hasn’t stopped NBCUniversal Media, LLC from being bullish on BuzzFeed. It is one of BuzzFeed’s biggest backers, having invested $400.0 million into the media company during a pair of funding rounds, each garnering $200.0 million from the company.
Coincidentally, that makes NBCUniversal one of the more active investors in the tech space these days, especially among younger demographics. The company also put $500.0 million into the owner of the “Snapchat” platform, Snap Inc (NYSE:SNAP), making it one of the largest beneficiaries of the Snap IPO. (Source: “BuzzFeed Said to Prepare for a 2018 IPO,” Fortune, March 29, 2017.)
So, while BuzzFeed is by no means in the realm of Uber Technologies, Inc. and Palantir Technologies, with their massive valuations ahead of much-anticipated IPOs, the billion-dollar-plus valuation is nothing to sneeze at. While the company’s flagging revenue increase from year-to-year has rightfully given pause to some analysts when looking at the company, there are still a great many assets that the company possesses that could be attractive to investors when the stock hits the open market.
Image created by Lombardi Publishing. (Data source: “Buzzfeed.com” Quantcast, last accessed April 4, 2017.)
Investing in BuzzFeed IPO
So what makes BuzzFeed an attractive investment? Much like Snap Inc and its Snapchat service, the company has a strong foothold in the younger demographic that advertisers salivate over. As we witnessed with the Snap IPO, strength in this area can be a huge boost to a company’s value and performance on the stock market.
Right now, BuzzFeed has a strong list of videos on its YouTube channel, with many receiving over 10 million views and some reaching as high as 60 million. The company certainly has a large and hungry consumer base that is generating high profits, in terms of ad revenue. The company reportedly registers over three billion views a month on its YouTube channel.
Beyond that, BuzzFeed has looked to expand into video production as of late.
The company rebranded its video department as “BuzzFeed Motion Pictures” in 2014. While this name change has been purely cosmetic until now, there is increased interest demonstrated by Jonah Peretti and BuzzFeed in creating more video content. The investment from NBCUniversal could also point to potential partnerships that spill over from the computer screen to the television in the near future. (Source: “Why BuzzFeed Is Finally (OMG!) Going Hollywood,” The Hollywood Reporter, July 14, 2016.)
BuzzFeed produces hundreds of videos a month over a variety of platforms, hoping to get young eyeballs glued to their screens and, therefore, rake in an immense amount of ad dollars.
“We will end up making films and TV and a whole bunch of virtual reality and other kinds of media,” said Jonah Peretti in a 2016 interview. “But it will come more organically out of franchises that we’re building. It isn’t something like we’re trying to shop 20 films and hoping we’ll get one made.” (Source: Ibid.)
The company is essentially looking to branch out into a number of different outlets, with the focus on its already strong video production. BuzzFeed is looking to parlay what it does with such expertise online into the television, tech, and movie realms.
Giving any number of its already popular “YouTube” stars a slot on television could be a huge boon to the company, but carries risks. After all, the millennials are notoriously known as the cord-cutting generation, and expecting a resurgence of television subscriptions from people signing up to see watermelons explode under pressure from rubber bands might be a little far-fetched.
What You Should Know About BuzzFeed IPO 2018
The company has a dominant, ready-made media empire in the online video space that brings in tons of views and ad dollars. But, with the most recent revenue trouble, while disputed by the company, a fair question is what room this company has left to grow.
While it has expanded into serious reporting and other interesting avenues, the real money-making venture for the company is its video content and the ad revenue generated from said videos.
While it does draw in a huge number of viewers, growth will have to continue at a steady clip if the company hopes to have a successful IPO. Otherwise, we might have a Twitter Inc (NYSE:TWTR) situation on our hands, in which the numbers begin to fall and so does the stock price.
Another issue facing BuzzFeed is that, while it may have perhaps been an innovator in the viral media business, it’s hardly alone in the space anymore. Vice, for instance, has made strong forays both online and into television.
Vice has both a hard news show on HBO as well as its own channel that pushes some of its more viral content, like food shows and travel shows.
This makes the path for the BuzzFeed IPO 2018 that much more interesting. The company certainly has potential to be a great publicly traded stock, but only if it can continue to expand and grow, despite its already-huge share of the market.
Finding a way onto TV and the big screen can help, and I have no doubt that the stock will likely be one of the hotter ones upon first release (similar to Snap), but I believe that, ultimately, most investors are better off passing on the BuzzFeed IPO.
The company simply doesn’t have enough growth potential to keep the stock going up once it does hit public markets. I don’t believe that TV and movies can help make up for that deficit. The online space continues to play an outsized role in advertising dollars, and I don’t see that changing anytime soon. Regardless of whether it manages to create successful television shows and its own network, I believe that BuzzFeed stock will likely be a poor long-term performer.