The day after Buzzfeed (NASDAQ:BZFD) stock came public, The New York Times ran its obituary: “BuzzFeed was once on the vanguard of digital media companies,” the story began.
Note the use of the past tense. Buzzfeed, which has no paywalls to limit reach, fell 11% in its first day of trading and raised less money than expected. By Dec. 9, BZFD stock was fighting to hold $7.50 per share. Yahoo Finance listed BZFD’s market capitalization at $175 million.
Buzzfeed had originally been valued at $1.5 billion by its SPAC sponsor, 890 5th Avenue Partners. The aim was to raise $250 million. This would fund acquisitions and operating costs. Buzzfeed bought Complex Networks and The Huffington Post before the public offering, and plans to buy more. But most private investors chose to cash out instead of participating in the IPO.
This dropped the equity raise to just $16 million. Buzzfeed then raised $150 million selling convertible bonds. Journalism has been dying ever since the Web was spun. Hundreds of local newspapers have publication in the last few years. At one time Buzzfeed was seen as a replacement, a youthful site for people who care more about Jennifer Aniston than Elizabeth Warren.
But Buzzfeed’s S-4 statement, which accompanied the deSPAC process, showed it lost over $1 billion just in the first three months of 2021. Operating cash flow was negative $1.3 billion. The only year where Buzzfeed showed any profit was 2020, $11 million on revenue of $321 million. Even in that year Complex Networks lost $7 million. The company expects 2021 revenue of $521 million.
“The big thing digital media needs for consolidation is a strong public company and we wanted to be the first,” CEO Jonah Peretti told Bloomberg. It still doesn’t have one.
Other digital publishers cheered Buzzfeed’s rocky start for justifying their own paywalls. These limit their audiences but do raise money. The Times company is now worth $7.5 billion while Bloomberg is financed by its financial terminal software.
The problem for Buzzfeed is the same one faced by every other online content company. The ad networks of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Meta Platforms (NASDAQ:FB) and Amazon.Com (NASDAQ:AMZN) let advertisers reach the smallest demographic targets for a base network price. The aggregation of audiences that journalism was built on now has no value.
Regulators and Apple (NASDAQ:AAPL) have been attacking the Google-Facebook duopoly. Apple, with its new data privacy changes, has been more successful. But Amazon doesn’t depend on external data resources for its targeting. “Does Amazon ever not win?” asked AdExchanger.
The question for Buzzfeed now may be one of survival. Adding to its woes was a walkout by union employees as the offering was being approved. The 61 workers said the IPO only enriched management. Buzzfeed responded that the union represents just a small portion of its 1,400 workers.
The Bottom Line
Schadenfreude is fun. But if the only business model available to publishers is political patronage, that’s what publishers will go for. Readers who can’t afford to jump paywalls are left with outlets that have neither ethics nor an ounce of truth in them.
There’s irony here. Before the rise of penny papers in the 19th century, publishing was run in just that way. He who had the gold made the rules at the time of the nation’s founding, and ethics had nothing to do with it.
It’s that way again.
On the date of publication, Dana Blankenhorn held long positions in AAPL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.