BuzzFeed SPAC Deck: 5 Key Takeaways

BuzzFeed to Become Publicly Traded Company

BuzzFeed, a prominent digital media organization, has revealed plans to enter the public market through a merger with a Special Purpose Acquisition Company (SPAC). This move will result in BuzzFeed becoming a publicly traded entity.

Acquisition of Complex Networks

Alongside the SPAC announcement, BuzzFeed also shared its intention to acquire Complex Networks. The purchase price is set at $300 million, to be paid through a combination of cash and shares of BuzzFeed stock. The funds generated by the SPAC deal will be instrumental in financing this acquisition.

Details of the SPAC Merger

The transaction involves a merger between BuzzFeed and 890 Fifth Avenue Partners Inc., which is already a publicly listed company. Upon completion, the resulting combined company is projected to have an enterprise value of approximately $1.5 billion.

Financial Resources

The SPAC partner is contributing $288 million in cash to the deal. Furthermore, BuzzFeed plans to secure an additional $150 million through a convertible debt offering, bolstering its financial position.

BuzzFeed’s Financial Performance

Currently, BuzzFeed operates as a substantial company, generating hundreds of millions of dollars in annual revenue. Recent financial performance has been near breakeven. However, the company forecasts a resurgence in growth following a relatively stable 2020, with projected improvements in profitability in the coming years.

Investor Presentation Overview

A detailed examination of BuzzFeed’s investor presentation is crucial to understanding the company’s trajectory. Key areas of focus include historical and projected growth rates, the composition of its revenue streams, and its profitability outlook.

Focus on the News Division

The presentation also outlines BuzzFeed’s strategic approach to its news division, providing insights into its role within the broader business model.

Navigating the Information

This analysis is structured into concise sections. Readers are encouraged to navigate directly to the areas of most interest, allowing for a focused review of the information presented.

BuzzFeed’s Acquisition of Complex: A Revenue Perspective

The acquisition of Complex by BuzzFeed is driven, in part, by the potential for expanded audience reach, which is crucial for future advertising revenue projections. However, a significant factor is the revenue stream that Complex itself contributes.

Examining BuzzFeed’s past revenue performance provides context for this strategic move.

• 2019: $425 million.
• 2020: $421 million.

It’s important to note that these historical revenue figures already incorporate Complex’s financial contributions. A detailed analysis reveals the individual revenue streams of BuzzFeed (represented in gray) and Complex (represented in black).

BuzzFeed projects a 19% revenue increase from Complex in 2021. Furthermore, the anticipated growth for the acquired group reaches nearly 23% in 2022.

According to subsequent data presented, BuzzFeed experienced 4% growth in 2019, a figure that includes Complex’s revenue. This growth rate declined to -1% in 2020.

We interpret BuzzFeed’s revenue history as demonstrating resilience through a challenging 2020. The digital advertising market faced substantial disruption in the first half of that year, likely affecting BuzzFeed’s performance. Maintaining a relatively stable revenue figure during this period is a positive indicator.

Projected Future Revenue

The BuzzFeed investor presentation expresses considerable optimism regarding future financial performance. This level of projected growth is typical of presentations related to Special Purpose Acquisition Companies (SPACs) during 2021, and should be viewed within that context.

Below are the company’s combined revenue growth forecasts, accompanied by a visual representation detailing BuzzFeed’s projected adjusted profitability as it expands its operations:

BuzzFeed forecasts a substantial resurgence in growth, anticipating a compounding revenue increase of 26% annually from 2021 to 2024. This projection represents a significant shift for a company that experienced minimal growth over the preceding two years.

The company projects its adjusted profitability will reach an adjusted EBITDA margin of 25% by 2024, with the majority of this improvement occurring between 2021 and 2023. Notably, the chart also indicates an adjusted profit of $17 million was achieved in 2020.

A key observation regarding BuzzFeed’s revenue growth projections is that while ambitious, they appear comparatively moderate when contrasted with some other SPAC offerings.

A deeper understanding of the methodology behind these projections requires an examination of the company’s revenue composition.

BuzzFeed's Projected Revenue Streams

BuzzFeed generates income through three primary avenues: advertising sales based on its audience size, the provision of content services, and a burgeoning commerce division. The mechanics of advertising and content sales are straightforward, however, the specifics of its commerce operations might require further clarification.

This analysis aims to provide a clearer understanding of BuzzFeed’s revenue model.

For instance, BuzzFeed capitalized on Prime Day by publishing numerous coupon guides, earning commissions on resulting sales.

The company views this model as highly effective. According to its investor presentation, BuzzFeed expects its commerce revenue stream to scale rapidly, representing approximately 31% of total revenue by 2024. An increasing proportion of higher-margin revenue is crucial for sustained, long-term profitability.

The following chart illustrates BuzzFeed’s current performance and projected growth, categorized by revenue source:

It was notable to observe that BuzzFeed forecasts its content business to exhibit the slowest growth and represent the smallest portion of its overall revenue in the future. With an anticipated compound annual growth rate of only 13%, it is projected to be surpassed by commerce revenue by 2024, based on the company’s own projections.

Advertising revenue is expected to increase at a faster rate than content revenue, meaning that selling advertising space on its platforms will remain BuzzFeed’s largest revenue category for the foreseeable future. However, its compound annual growth rate is less than half that of commerce, suggesting this dominance will be short-lived.

Therefore, BuzzFeed’s future is significantly reliant on commerce. Expect a continuation of the trend towards increased product recommendations and affiliate marketing, similar to the Amazon-focused content mentioned earlier. BuzzFeed’s investor deck indicates that its commerce initiatives “generated approximately $500 million in attributable transactions in 2020, a 62% year-over-year increase.” This represents substantial progress!

How does the acquisition of Complex factor into this strategy? According to the company’s presentation, Complex is a considerably larger property than the Huffington Post, which BuzzFeed previously acquired from Verizon Media. BuzzFeed reports that HuffPo attracts 11 million monthly unique visitors, while Complex reaches 14 million.

Furthermore, Complex’s audience demonstrates a higher level of engagement. This is particularly beneficial for driving sales, as more engaged audiences are more receptive to purchasing recommendations. BuzzFeed highlights “[i]mmediate… monetization opportunities” stemming from the Complex acquisition.

In summary, BuzzFeed anticipates that commerce revenues – characterized by higher margins than other revenue streams – will be a primary driver of its future growth and profitability. Advertising will secure the second position in terms of growth, while maintaining the largest share of overall revenue in the near term.

Content creation is positioned as a moderate growth business, expanding at a slower pace than the company’s other two revenue sources. Investors optimistic about the potential of commerce revenues within digital media may find the BuzzFeed deal particularly appealing.

Profitability Outlook

As previously established, BuzzFeed projects a trajectory of increasing adjusted profitability in the future. A key inquiry centers on the mechanisms driving this anticipated improvement.

It's important to remember that BuzzFeed forecasts a growing proportion of its overall revenue originating from commerce activities. Furthermore, it has been noted that revenue generated through commerce carries higher margins compared to other revenue streams. Consequently, an improvement in the company’s gross margins is expected as it expands its operations.

This expectation is supported by the following data:

To clarify, the chart on the left illustrates the previously discussed shift: the increasing contribution of commerce revenue to BuzzFeed’s total revenue. The chart on the right demonstrates a decreasing trend in “COGS as % of revenue.” A reduction in COGS, or the cost of goods sold, signifies expanding gross margins, aligning with our expectations.

The green line in the second chart is also significant. A decline in OpEx – operating expenses – as a percentage of revenue suggests operating leverage as the company scales. This allows for faster profitability growth than revenue growth, as incremental revenue can be achieved without a corresponding increase in operating costs.

BuzzFeed is communicating to investors that its evolving revenue composition will result in a more favorable financial performance over time. This represents a positive development for the business.

BuzzFeed's SPAC Deck: Key Observations

A strong appreciation exists for BuzzFeed News, recognized for its dedicated journalistic staff. Their reporting on the extensive incarceration of Muslims by the Chinese government recently earned them a Pulitzer Prize. This achievement was also acknowledged within the SPAC deck presentation.

Further noteworthy content includes a reference to Hot Ones, a popular video series produced by Complex. The show enjoys a substantial and dedicated fanbase.

Despite its creative endeavors, BuzzFeed, like many corporations, occasionally employs formal business jargon when describing its operations. The following excerpt details the acquisition of Complex:

Indeed, the phrase second windowing opportunities for digital-first IP is used. This highlights potential avenues for expanding content reach.

Our discussion has covered several points. In essence, the BuzzFeed deck reveals a company that faced challenges in achieving growth during 2020. However, it expresses considerable confidence in the future performance of its core advertising business and its expanding commerce sector.

Looking Ahead

The market's response to BuzzFeed's trading debut in the coming months will be a crucial indicator of investor sentiment. It will demonstrate how well the company's projections align with market expectations.