A household name in the Digital Age hit the market on Monday, and it's fair to say things didn't go well. BuzzFeed (BZFD) went public after striking a deal to combine with special purpose acquisition company (SPAC) 890 5th Avenue Partners. Shareholders of the blank-check firm approved the combination late last week.
The new BuzzFeed-rebranded stock initially traded sharply higher on Monday, only to end its first day of trading 11% below the prior week's close of $9.62. Things only got worse with sharp downticks for the next three trading days. Let's break down the market's cold reception in a way that BuzzFeed fans can appreciate -- with a listicle.
You're not going to believe reason No. 4. Don't even get me started on reason No. 6.
1. Growth isn't very impressive
The BuzzFeed prospectus is lengthy, but its data range is weak. There are no pre-2020 financials listed, something you would think should be par for the course for a company going public. Folks want to know how a potential investment was doing before the pandemic, and not just how 2021 is playing out against a possibly sandbagged 2020.
What the prospectus tells us about BuzzFeed is that it is growing. Revenue rose 27% through the first nine months of this year, but that pace decelerated to a 20% year-over-year advance for its latest quarter. Adjusted EBITDA is mildly positive now, but this isn't the kind of growth that will get investors to take a chance on a trendy digital media empire.
2. BuzzFeed popularity's growth is less impressive
Another thing you should pick up from the prospectus is that the time spent on the platform is growing at a slower clip than its top line. Folks spent 602,248 hours consuming BuzzFeed content through the first nine months of this year, just a 10% increase over the same period a year earlier. It did accelerate to a 16% increase in the third quarter, but like so many online platforms, we're seeing a rise in average revenue per user mask weak consumption.
3. We're leaning hard on third-party platforms
Making matters worse, just 31% of the time spent on BuzzFeed content in its latest quarter is being done on its own platform. The other 69% of the consumption time is taking place on third-party sites. It's a trend worth watching, as BuzzFeed served up 39% of the content consumed on its own site through the first nine months of last year -- or 33% in the third quarter of last year.
It's great to have partners, but that also puts BuzzFeed at a risk of renewing distribution deals. It's also disheartening if you're coming in assuming that BuzzFeed is a destination that's growing in popularity, as consumption growth on its own platform is actually negative for the first nine months of this year relative to last year.
4. Smart money bailed on BuzzFeed
One of the more shocking nuggets of this SPAC deal is that 94% of the $287.5 million the SPAC raised has been withdrawn by investors. Less than $20 million of the money initially raised is going to BuzzFeed.
5. SPAC fatigue is real
The SPAC trend appears to be losing steam. Many of this year's biggest losers are freshly minted companies that went public by combining with a blank check company. It seemed like an interesting idea two years ago. Companies that wanted to go public found an easier path with fewer hoops to jump through by just warming up to a cash-flush SPAC.
A few high-flying SPAC deals last year drummed up the interest of retail investors, but the grim scorecard of 2021 is sending those same trend chasers somewhere else. A SPAC deal may still be able to succeed if it's a quality name at a fair price, but most of those companies have the patience to hit the market going the traditional IPO route.
6. Employees aren't happy
It's a bad look when some of your own employees stage a walkout right before your market debut, but that's exactly what happened on Thursday of last week. The BuzzFeed News Union staged the one-day strike to coincide with the day that 890 5th Avenue Partners were voting to approve the combination with BuzzFeed.
The union claims that BuzzFeed is refusing to budge on wage increases and other contract terms, just as the market debut was about to make executives wealthy. Making matters worse, BuzzFeed reportedly threatened to dock the striking workers a day of vacation time for not showing up to work. You may think that's just -- or you may not -- but generally that's a bad look.
This isn't the first time BuzzFeed has disappointed its hires. It let 200 employees go two years ago in a restructuring. Just two-thirds of BuzzFeed employees would recommend working there to a friend, according to Glassdoor.
7. Buyouts will be hard with a broken stock
A lot of other established digital media companies naturally had their eyes on the BuzzFeed SPAC deal. If it would've been a hit, companies such as Vice, Vox, and Bustle could've followed BuzzFeed's lead or possibly considered being acquired. Right now that's pretty much off the table.
BuzzFeed stock is dead currency, and it didn't raise as much money as it was hoping to do to load up its war chest. The acquisition of Complex Networks could be the last new puzzle piece until the stock finds a way out of the single digits.