What happened
Shares of BuzzFeed (BZFD -1.28%) are having a sensational week. As of 2:15 p.m. ET on Friday, shares of the digital media company were up 278% for the week, and had been up as much as 352% for the week earlier in the trading session on Friday, according to data provided by S&P Global Market Intelligence.
While these returns are for the week, BuzzFeed stock has really gained all of this in just the last two days. And that's because a partnership with Meta Platforms was announced yesterday.
So what
The market had extremely low expectations for BuzzFeed. The company went public in 2021 via a special purpose acquisition company (SPAC). And like most SPAC stocks, management put forth ambitious projections that it didn't hit. For example, in BuzzFeed's SPAC presentation, management said it would do $654 million in revenue in 2022 with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $117 million -- an impressive 18% profit margin.
The first three quarters of 2022 have already been reported. And BuzzFeed now believes it will generate revenue of $436 million this year, at best. And the company will break even for the year on an adjusted EBITDA basis if fourth-quarter results are strong.
In other words, BuzzFeed's financial results haven't lived up to initial expectations. And this appears to have caused the market to disregard it all together. For evidence, consider that before yesterday, BuzzFeed stock traded at less than half of its book value.
With expectations so low, all it took was yesterday's positive news to send the stock soaring. BuzzFeed will reportedly work with Meta to develop branded content on its Facebook and Instagram platforms, which could be worth millions of dollars, although official terms of the deal haven't been disclosed yet.
Now what
I don't believe it's right to think that its deal with Meta changes everything for BuzzFeed. Rather, I think the correct takeaway is that BuzzFeed is far from dead and its stock has now jumped closer to where it should have been all along.
However, the question that investors need to answer is whether BuzzFeed stock can beat the market from here. One encouraging sign for the company came from its third-quarter financial report. BuzzFeed has excelled for years at long-form video content, but these days short-form video (one minute or less) is increasingly popular. However, views for the company's short-form (vertical) video content grew 60% in Q3 compared to the second quarter.
BuzzFeed still has a lot to prove -- it's missed past projections and recently laid off 12% of its workforce. However, its growth in short-form video is a reminder that the company is very good at staying in front of trends, which makes it a stock worth watching from here.
