Sizing up BuzzFeed: could this unicorn ever go public?

Tech firm plans IPO

LOS ANGELES, June 22, (RTRS): The herd may be starting to thin for “unicorns,” the label Silicon Valley reserves for its most promising start-ups.

The number of private companies that exceeded a $1 billion valuation is roughly one-third of what it was prior to 2016, according to research Goldman Sachs issued in March. Even rarer: the number of unicorns that reach a more exalted status — the initial public offering. Those plummeted at a similar rate after 2014.

All of which may explain why one such unicorn, BuzzFeed, has the tech industry abuzz in anticipation of an IPO of its own — even though CEO Jonah Peretti has yet to confirm that’s where he’s headed. In an interview with Variety last week he makes clear he’s aware of the attention that “one possible path” is bringing to his company.

“I know that there’s a lot of focus on things like IPOs or potential transactions,” says Peretti. “The thing I try to stay focused on is the work itself.” But Peretti may find his work cut out for him if an IPO is what he pursues to bring liquidity to investors, including NBCUniversal, that have been with the company for varying lengths over its decadelong history. Going public would be met with considerable skepticism among BuzzFeed watchers, including current and former employees who spoke with Variety about the company’s ability to achieve a successful IPO.

Challenging

For starters, any company daring to dive into public markets faces challenging conditions, as Snap is learning the hard way. BuzzFeed also must consider several business obstacles that could thwart the growth necessary to go public, particularly regarding the vaunted video production and distribution capabilities that are being counted on to drive that growth.

At a time when an unusual number of media companies are considering IPOs — including Vice Media, Rovio, and STX Entertainment — they all may find that being in the content business is a knock against them on Wall Street.

“If at the end of the day the market just perceives BuzzFeed as a media company with a new spin, but it’s still just a media company that’s paying for content, frankly I don’t know if that’s a good formula for a successful public company,” says Hale Boggs, chair of technology consulting firm Manatt Digital Media in Los Angeles.

Co-founded by Peretti, BuzzFeed has excelled at leveraging multiple social platforms with advertiserfriendly multimedia content that resonates with a massive, millennial-skewing online audience. But the hype is tempered somewhat by financials that, by unicorn standards, are modest. The company’s current valuation is $1.7 billion, set in late 2016 when NBCU pumped in $200 million, doubling down on the $200 million it plunked down the prior year. Putting aside NBCU’s later capital injection, BuzzFeed has been at the same valuation since 2015.

One of the tech/media sector’s most prominent investors, Ken Lerer, is the chairman of BuzzFeed and managing director of Lerer Hippeau Ventures, a major stakeholder in BuzzFeed along with RRE Ventures, General Atlantic and NBCU, which all declined comment for this story. While he’s not tipping his hand as to where BuzzFeed stands on an IPO, he says it’s one of many possible options. “BuzzFeed, if it chooses, might be very well positioned because of the strength of the core business, where the digital content industry is going and where the traditional media industry is not going,” he says.

Judged

Ultimately, revenue is what IPO candidates will be judged by most. Reports earlier this month suggested that BuzzFeed is internally projecting total 2017 revenue of $350 million, up 35% from 2016. This has been a sore spot for the company in the past: Reports last year maintained that BuzzFeed cut its overly optimistic 2016 revenue goals in half, and that it missed its 2015 sales goals. BuzzFeed has long disputed the figures. What’s not in dispute is that video is a crucial revenue driver for BuzzFeed’s business. It represents more than half of total revenue, up from less than 10% three years ago, according to the company. With more than 9 billion content views per month, BuzzFeed says it has reached all-time monthly highs in content views, unique visitors and time spent in 2017 — no other content company, traditional or digital native, can top it.

A giant success for BuzzFeed has been Tasty, a series of short how-to cooking videos and recipes (e.g., taco pizza and ice cream churro bowls), which frequently pull in well over 1 billion views each month. Now BuzzFeed is building new franchises using the same model of short, shareable videos, including Nifty, Goodful (healthy eating), Bring Me (travel) and Top Knot (fashion).

The unit within the company that’s producing all this content is BuzzFeed Entertainment Group, a unit separated last year from BuzzFeed News, which has evolved from traffic-rich listicles to acclaimed journalism. Its publication of a dossier on Trump’s activities in Russia was a huge scoop earlier this year, though the company has since been hit with a defamation lawsuit.