BuzzFeed founder pledges ‘financial rigour’ in digital media roll-up

BuzzFeed founder Jonah Peretti pledged to adopt more financial discipline than he has in the past as he laid out plans to consolidate the digital media industry once he has taken his company public via a blank-cheque vehicle.

Referring to the period between 2014 to 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 the revenue could support it.”

However, Peretti said that after investing heavily in BuzzFeed’s news operation in its earlier days, he was now more focused on “financial rigour”, adding: “I feel like I learned from that mistake . . . you need to have more financial discipline in the short term to make sure you’re growing in a sustainable way.”

BuzzFeed, known for its shareable listicles and quizzes, is one of a generation of digital media groups that experienced a stunning rise and fall over the past decade. Investors soured on these companies in recent years because they were unable to match hype with financial performance, resulting in a period of slashed valuations and redundancies. 

Peretti in 2011 hired journalist Ben Smith to build out a serious journalism operation, and the group was recently awarded its first Pulitzer Prize. However, BuzzFeed News has implemented several rounds of lay-offs in recent years as Peretti looked to tighten costs. The company shut down BuzzFeed’s UK and Australian divisions last year. 

Peretti expects BuzzFeed News to make a “modest loss” this year and eventually achieve profitability, while HuffPost, which it acquired this year, is on track to turn a profit this year, he said.

The 47-year-old also predicted an eventual rebound in valuations for digital media outlets. “The market was very hot but nobody had built sustainable companies yet, including BuzzFeed,” Peretti said. “Now the strongest companies are emerging from the other side. We’re at the start of this next stage of appreciation of valuations.”

With BuzzFeed set to become a public company, Peretti said he will have the cash to achieve his mission of rolling up the sector to build a digital media behemoth. “We now have a sustainable engine for growth. Especially if we can do quick M&A. It’s a scalable business,” he added.

He declined to name takeover targets, but said other digital media brands were “exciting”. In 2019 he said Vice, Vox Media and Group Nine were “doing interesting work”.

Peretti has spent the past few years preparing to take BuzzFeed public to fund his planned deals spree. The chief executive last year plotted an IPO, but scrapped those plans once the pandemic hit. The company weathered the coronavirus storm better than expected, ending 2020 with $4m in net income, compared to a $29m net loss in 2019. 

As the market for special purpose acquisition companies gathered steam, Peretti began examining that route in order to go public more quickly. BuzzFeed last month agreed to merge with 890 Fifth Avenue, a blank-cheque company, giving his company a $1.2bn valuation, below the $1.7bn BuzzFeed alone had commanded in a private fundraising in 2016.

However, BuzzFeed was hit by the slowing enthusiasm for Spacs in recent months.

Instead of the private investment in public equity financing that has become the norm for Spac deals, BuzzFeed raised an additional $150m through convertible bonds led by Redwood Capital Management. This was because of weaker interest from pipe investors that typically fund Spac deals, according to people close to the situation.

As part of the deal, BuzzFeed acquired Complex, the publisher behind the streetwear brand. 

Vice Media has also been in talks to go public through a merger with special purpose acquisition vehicle 7GC & Co Holdings, said people familiar with the matter. 

Peretti’s task now is to convince investors that BuzzFeed can meet the financial forecasts he has laid out, and grow into a sustainable, profitable company. 

He has his work cut out. Investors have slashed valuations of digital media companies in recent years, reflecting scepticism that they can ever deliver decent financial returns. Disney in 2019 wrote off its entire $400m investment in Vice. 

In an investor presentation filed with the SEC, BuzzFeed predicted it would double revenue from $520m this year to $1.1bn in 2024. The company has previously fallen short of its forecasts, missing revenue targets in 2015 and 2017, the FT has reported. 

The group has touted its fast-growing commerce business, through which it sells BuzzFeed-branded products ranging from spatulas to sex toys, and earns a commission for recommending other products sold online. Peretti anticipates that commerce will make up 31 per cent of all revenue by 2024, up from only 11 per cent in 2019, and likened BuzzFeed to a digital mall.

“People go [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 has figured that out on the digital side,” he said. “A lot of ecommerce is about utility. BuzzFeed has figured out how to make it fun.”

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