A glance at the first trading day of Buzzfeed as a public company is a sign of things to come. When Facebook went public earlier this year, it hit $100 a share within hours. BuzzFeed went public this week. On its first day of trading, the company jumped $40 a share, opening at $21, almost a 20 percent gain over its offering price. But Friday wasn’t all good news.
During its first day of trading, BuzzFeed issued five ratings on its latest issue of the stock, the company’s first. Three said no, including those from Pivotal, BlueCrest and UBS. Despite, or maybe because of, those downgrades, the company’s stock dropped to $20 a share on Friday, giving it a market cap of just over $1.7 billion.
“BuzzFeed has traded very little and traded more than one side of the trade,” Greg Kleiner, the head of media research at S&P Global Market Intelligence, wrote in a note to clients Friday. “The growth strategy and the nonlinear path to scale feel like a ‘home run’; nevertheless the rating consensus has been mixed.”
To Kleiner’s point, while the global media industry as a whole grew by about 6 percent to $433 billion last year, BuzzFeed grew by 2.6 percent to $600 million, as part of its strategy to build scale for advertising against its vast trove of content from more than 10,000 people working around the world. “What does it all mean? Is BuzzFeed still a digital media company?” Kleiner asks in his note. “Is BuzzFeed learning more from the traditional internet business model or is it a web startup like Medium and Medium2.0 with a digital internet size target? Is this a play for every day usage or primarily for the high-spending brands advertising on it?”
The short answer to all of these questions is no, BuzzFeed isn’t the next Facebook. But what it does say is that the company is facing the same valuation challenges that will face any startup trying to find an audience, a revenue model and revenue growth that can be applied across the rest of the web, regardless of whether that startup happens to produce cheap content and demonstrate huge viral virality.
At its IPO price of $20 a share, the company has a market cap of $1.73 billion, but that total will depend on how it performs in the next few weeks and months. And there are a few big reasons for investors to be concerned. Like Facebook, it’s building a fundamentally different set of ad technologies for marketers to work with, which it relies on its audience to produce. Even though BuzzFeed is routinely touted as a source of content, its core business is advertising. With that kind of growth trajectory and share price spike this week, its shares could suddenly look like overpriced. And now that it’s a public company, it is subject to more financial scrutiny from investors, which could affect its handling of its investors and financial performance, and could accelerate a slowdown of its growth.
That has never stopped BuzzFeed from forging ahead and proving just how far it can go with its content business, even when it’s encountered huge bumps along the way. It’s been a long slog, but the people who’ve made the company what it is today are determined to get to the end, despite some major bumps along the way.