Online media group BuzzFeed is now a publicly-traded company after completing a SPAC merger where it fetched just $16.2 million in fresh capital.
Shares of the New York-based startup began trading on the Nasdaq stock market on Monday, Dec. 16 under the ticker “BZFD“.
BuzzFeed went public after its investors voted in favor of a merger with blank-check company 890 5th Avenue Partners.
Here’s everything you need to know about BuzzFeed IPO.
BuzzFeed time as a private company
BuzzFeed is a news and entertainment platform that is popular for its listicles and other viral posts.
The company was founded in 2006 and instantly became a favorite among people for putting out viral content on the web. Its businesses include BuzzFeed News, Tasty Lifestyle Brands, and BuzzFeed Entertainment.
Jonah Peretti, founder and CEO of BuzzFeed, started the company as a kind of experimental venture when he was working at HuffPost, formerly The Huffington Post.
The company has been on an acquisition spree since last year, adding HuffPost to its portfolio. As part of its merger agreement with 890 5th Avenue, BuzzFeed also agreed to acquire Complex Networks for $300 million.
Complex Networks is a digital publisher that specializes in culture, streetwear, and music.
The plan for the offering
It was initially expected to be valued at $1.5 billion, but the stock started trading at a fraction of that and far less than $17 billion the company was estimated to be worth a few years ago when NBC universal invested in it.
BuzzFeed made its public debut by merging with 890 5th Avenue, a blank-check company, or special purpose acquisition company (SPAC). After the merger, the resulting company was renamed BuzzFeed Inc., and shares began trading on Monday.
BuzzFeed has planned to raise $288 million held by 890 5th Avenue Partners. However, the company only fetched $16.2 million, or 6% of the proceeds after 94% of the SPAC’s shareholders redeemed their shares.
A look at BuzzFeed’s books
According to Peretti, BuzzFeed’s multiple revenue streams allow the company to adapt when one business area is not doing well.
“The most important thing is we have a resilient, diverse business that can manage through changes in the marketplace,” Bloomberg quoted Peretti as saying.
As BuzzFeed prepared to make its market debut, the company published an investor presentation predicting aggressive profit and revenue growth by 2024. The presentation includes revenue projections of more than $1 billion.
BuzzFeed revenue has been on an upward trajectory in recent years.
For the half-year ended June 30, 2020, the company posted revenues of $123 million. That increased to more than $161 million for the half-year ended June 30, 2021.
For year 2021, the company posted revenue of $321 million in annual revenue. Its executives are projecting $654 million in 2022.
But BuzzFeed is still unprofitable.
For the half-year ended June 30, the company had a net loss of $19 million. But it later trimmed those losses to $12.1 million for the half-year ended June 30, 2021.
However, BuzzFeed has lowered its operating losses.
For the six months ended June 30, 2021, the company recorded an operating loss of $17 million, down from $20.5 million in the same period a year earlier.
Meanwhile, adjusted EBITDA for the half-year to June 30, 2020 stood at -$10.7 million, compared with an adjusted EBITDA of $1.3 million for the same period in fiscal year 2021.
For the full year 2020, BuzzFeed had an adjusted EBITDA of $31 million and is expecting that to increase to $117 million in 2022.
In the latest quarter ended September, BuzzFeed had a net loss of $3.6 million, up from a net loss of $2.1 million in the same quarter a year ago.
However, revenue increased 30% on a year-over-year basis to $90.1 million. Commerce revenue rose 14% to $13.4 million, while advertising revenue increased 39% to $50.2 million facilitating the growth.
Content revenue came in at $26.5 million, down 4%.
Why BuzzFeed chose the SPAC route over a traditional IPO
As mentioned before, BuzzFeed went public through a merger deal with 890 5th Avenue, a special purpose acquisition company named after the fictional Avengers mansion.
BuzzFeed joins a list of other popular companies such as Virgin Galactic (NYSE: SPCE), DraftKings (NASDAQ: DKNG), Nikola (NASDAQ: NKLA), ChargePoint (NYSE: CHPT) that have made their Wall Street debut in recent months via SPACs instead of pursuing the traditional IPO path.
So, why has BuzzFeed and other privately held startups opted to go public by merging with blank-check companies?
Well, one of the main benefits of going public via a SPAC merger is that the process usually takes 3-6 months on average, unlike a traditional IPO that roughly takes 12 to 18 months.
Secondly, because a SPAC deal is technically an acquisition, blank-check companies are allowed by securities regulators to include projected future revenue in their investor presentations, thus moving attention away from actual business results.
Thirdly, the sponsor of the SPAC and the private company it is merging with can publicly hype their shares in a manner not allowed in a normal IPO.
SPAC deals also usually include a huge investment of private capital that enables executives to have more say on which large investors they add to the company.
And most importantly, the SPAC’s sponsors offer a good deal to individuals investing in their blank-check company in the course of it acquiring its target company.
The offer includes giving the investors an option to redeem their investment at a profit before the conclusion of the merger.
How BuzzFeed stock performed on its first trading day
BuzzFeed stock tumbled on its first day of trading, a sign Wall Street is cautious about the company after a rocky lead-up to its IPO.
The stock dropped after initially surging nearly 50%. Shares were changing hands at about $8.56 apiece when the closing bell rang on Monday after opening the day at $9.57 apiece.
BuzzFeed’s disappointing debut came after the company raised far fewer proceeds than its executives had anticipated. After teaming up 890 5th Avenue, Peretti and his colleagues expected to raise more than $250 million.
However, a large number of investors backed out of the merger and were refunded the money they had put in the SPAC. As a result, BuzzFeed only managed to raise $16.2 million.
Bottom Line
BuzzFeed reached profitability at the height of the Covid-19 pandemic in 2020. The digital media company, which is known for its entertainment content and irreverent lifestyle hopes the IPO will help add more businesses to its portfolio.
In a press conference a day before BuzzFeed went public, Peretti said proceeds from the IPO will allow the company to acquire more businesses and pursue other exciting opportunities.
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