BuzzFeed founder Jonah Peretti has pledged to adopt tougher financial discipline than he has in the past by laying out plans to shore up the digital media industry once he brings in his company on the stock market via a blank check vehicle.
Referring to the period between 2014 and 2016, when digital media groups like BuzzFeed raised billions of dollars after winning over younger audiences, Peretti told the Financial Times: “There were a lot of missionary-type founders who . . . invested in news beyond where revenue could support it.
However, Peretti said that after investing heavily in BuzzFeed’s information operation in its early days, he now focused more on “financial rigor,” adding: “I feel like I’ve learned from this mistake … you need to have more financial discipline in the short term to ensure that you grow sustainably.
BuzzFeed, known for its shareable lists and quizzes, is part of a generation of digital media groups that has seen an astonishing rise and fall over the past decade. Investors have turned to these companies in recent years because they failed to match the hype with financial performance, resulting in a period of downsized valuations and layoffs.
Peretti in 2011 hired journalist Ben Smith to put together a serious journalistic operation, and the group recently received their first Pulitzer Prize. However, BuzzFeed News has implemented several rounds of layoffs in recent years as Peretti seeks to cut costs. The company closed the UK and Australian divisions of BuzzFeed last year.
Peretti expects BuzzFeed News to make a “modest loss” this year and eventually become profitable, while HuffPost, which he acquired this year, is on track to turn a profit this year, he said. declared.
The 47-year-old also predicted a possible rebound in digital media valuations. “The market was very hot but no one had started a sustainable business yet, including BuzzFeed,” said Peretti. “Now the strongest companies are emerging on the other side. We are at the start of this next stage of valuation appreciation.
With BuzzFeed on the cusp of becoming a state-owned company, Peretti said he would have the cash on hand to accomplish his mission of growing the industry to create a digital media giant. “We now have a sustainable growth engine. Especially if we can do quick mergers and acquisitions. It’s a scalable business, ”he added.
He declined to name buyout targets, but said other digital media brands were “exciting.” In 2019, he said that Vice, Vox Media and Group Nine “were doing an interesting job.”
Peretti has spent the last few years preparing to go public with BuzzFeed to fund his series of planned deals. Last year, the CEO planned an IPO, but abandoned those plans once the pandemic struck. The company weathered the coronavirus storm better than expected, ending 2020 with a net profit of $ 4 million, compared to a net loss of $ 29 million in 2019.
As the market for specialist acquisition companies grew, Peretti began to explore this route in order to go public more quickly. BuzzFeed agreed last month to merge with 890 Fifth Avenue, a blank check company, giving its company a valuation of $ 1.2 billion, lower than the $ 1.7 billion BuzzFeed alone ordered in a private fundraiser in 2016.
However, BuzzFeed has been affected by the slowdown in enthusiasm for Spacs in recent months.
Instead of the private investment in public equity financing that has become the norm for Spac transactions, BuzzFeed has raised an additional $ 150 million through convertible bonds led by Redwood Capital Management. This was due to lower interest from pipe investors who typically fund Spac deals, according to people familiar with the situation.
As part of the deal, BuzzFeed acquired Complex, the publisher of the streetwear brand.
Vice Media is also in talks to go public with a merger with special-purpose acquisition vehicle 7GC & Co Holdings, people familiar with the matter said.
Peretti’s task now is to convince investors that BuzzFeed can meet the financial forecasts it has set and become a sustainable and profitable business.
He has his work cut out for him. Investors have slashed the valuations of digital media companies in recent years, reflecting their skepticism about their ability to generate decent financial returns. Disney in 2019 canceled its entire $ 400 million investment in Vice.
In an investor presentation filed with the SEC, BuzzFeed predicted that it would double its revenue from $ 520 million this year to $ 1.1 billion in 2024. The company has previously fallen short of its forecast, missing its revenue targets in 2015 and 2017, the FT reported.
The group touted its growing business activity, through which it sells BuzzFeed branded products ranging from spatulas to sex toys, and earns a commission for recommending other products sold online. Peretti predicts that retail will account for 31% of all revenue by 2024, up from just 11% in 2019, and compared BuzzFeed to a digital mall.
“The people will [to the mall] even if they don’t know what they want to buy. They shop as a form of entertainment and I think BuzzFeed got that on the digital side, ”he said. “Much of e-commerce is about utility. BuzzFeed figured out how to make it fun.