- Buzzfeed is expected to go public at the end of 2015 or the beginning of 2016.
- The company grows its business and revenues rapidly with more than a 162% annual growth.
- The company might easily be tempted to stretch its revenue multiples to meet other social sites and risk overvaluation.
Buzzfeed IPO could be the next popular tech IPO, following the likes of Shopify IPO, Etsy IPO and Baozun IPO. The social news company is reportedly planning to go public as part of its expansion efforts following its incredible growth. The New York-based startup is well known for its viral articles with snazzy titles like “21 Ridiculous Things You Can Buy At American Apparel” and silly quizzes like “Can You Figure Out These Kanye West Songs From The Emojis?” The entertaining content was consumed by more than 150 million users per month in 2014 that widely shared it on social media networks mainly through mobile devices. On top of its silly viral content that brought Buzzfeed its full recognition (and probably most of its ad sales), the media publisher attempts to publish more traditional and serious news content under its Buzzfeed News brand Moreover. It’s currently building its San Francisco office to expand the tech business coverage of Buzzfeed News.
Even though Buzzfeed tries to add serious content to its platform, it is currently a synonym for the viral content that attracts most of the platform’s users and advertisers.
Like other publishing services, Buzzfeed generates revenues from advertising; however, unlike other publishers that promote advertisers through ad banners or sponsored complimentary services, Buzzfeed offers advertisers to promote their projects through sponsored articles. This controversial business model is unique in the publishing market, and the company received much criticism about it claiming that Buzzfeed compromises its journalistic integrity for ad revenues. However, when promoted content is clearly marked “promoted” and most of the content is primarily for entertainment purposes, one is not sure how compromised integrity matters for readers.
As mentioned above, Buzzfeed also has a more serious news brand under “Buzzfeed News” that features not only Buzzfeed original content but news content from other leading news publishers. As Buzzfeed probably won’t compromise on the journalistic integrity of Buzzfeed News, the company will probably increase the number of publishers featured on the platform and ad banners, both replacing promoted content available on the general Buzzfeed site.
Buzzfeed is slowly growing its global footprint from the U.S. and U.K. to nine local sites in six different languages. Buzzfeed’s global expansion and its ad sales strategy enable the company to show an impressive revenue growth of 162% annually and a 143% annual growth rate in the number of monthly active users (MAU), as shown in Chart 1 below.
Another catalyst for Buzzfeed’s growth is the high number of acquisitions the company made (for a typical start-up) between September 2011 and February 2015. The company’s acquisitions included small start-ups that specialized in video creation, sharing, social media optimization, and other areas that directly related to Buzzfeed’s core business. As Buzzfeed is fully focused on growth, it attracted many prominent investors over the years and became an attractive IPO candidate.
Buzzfeed Valuation and Funding
Buzzfeed raised almost $100M in five funding rounds from July 2008 to August 2014. As shown in chart 2 below, Buzzfeed's valuation increased in every round and reached a peak of $850M in the latest Series E that took place in August 2014. Early shareholders include prominent investment and VC funds such as SoftBank Capital, Hearst Ventures, Lerer Hippeau Ventures, and Andreessen Horowitz, who were the only participants in Series E round.
Buzzfeed IPO Valuation
As Buzzfeed had its last funding round in August 2014, the company will probably raise another pre-IPO funding series this year if the company targets going public towards the end of 2015 or the beginning of 2016. Buzzfeed Series E valuation of $850M reflected a revenue multiple of 9 based on $100M TTM revenues. Buzzfeed’s series E revenue multiple is lower than Facebook’s (NASDAQ:FB) multiple of 17 and Twitter’s (NYSE:TWTR) multiple of 15. Assuming Buzzfeed could stretch its revenue multiple up to 15 or 17 to maximize the amount raised through the IPO, it may become highly overvalued like the expected Pinterest IPO. However, in light of the recent IPOs of Shopify (NYSE:SHOP) and Etsy (NASDAQ:ETSY), which had similar revenue multiples and started trading at significantly higher prices than initially announced, I believe Buzzfeed IPO could be successful even with a revenue multiple of 15 or 17.
However, for the small investor who could only purchase the stock from the market after the opening price has already spiked, it might not be as profitable as it may be difficult to maintain such a high valuation relying on social media trends. For companies like Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA), it did not end well.
Buzzfeed IPO is expected to be held at the end of 2015 or at the beginning of 2016. The company presents an impressive growth in revenues and monthly active users driven by the company’s numerous acquisitions and its global expansion plan. Following Buzzfeed’s series E funding round, the enterprise has a P/S ratio of 9 that might be stretched up to 15 or 17 to meet the level of other social media players like Facebook or Twitter. However, as Buzzfeed relies on social media sharing and viral content, overvaluation might be difficult to maintain; this is what happened to Groupon and Zynga.
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