Get Ready for BuzzFeed’s Valuation to Fall

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BuzzFeed will miss its ad revenue targets for 2017. It laid off 100 people recently, likely for that reason. Its most recent valuation, based on a large investment in the company, is $1.7 billion. Get ready for the value of this “unicorn” to plunge.

Among reasons that BuzzFeed will not hold its current value is that its growth story has been badly tarnished as it has missed its revenue forecast. According to several media reports, it will be 15% to 20% short of a revenue target of $350 million for 2017. That means revenue could be as low as $280 million, against $250 million last year. If those numbers are correct, BuzzFeed’s 2017 revenue will only rise 12%, impressive in the current media environment, but hardly the sort of growth investors expected.

In October of last year, Comcast’s NBCUniversal put $200 million into BuzzFeed at the $1.7 million valuation. According to Business Insider, this valuation was flat with the one set by investments made in 2016. Savvy investors clearly worried about BuzzFeed’s prospects late last year. It is hard to say why, but they may have seen the revenue slowdown coming.

BuzzFeed may not have to raise any more money, if it becomes profitable soon. This would be good news for investors, because new investment would almost certainly be what is called a “down round” made at a valuation less than $1.7 billion. Uber, although in a very different business, has had enough problems that money it expected to raise late this year will be done at a sharp cut in valuation from earlier rounds. And investment by Softbank would set Uber’s valuation at about $50 billion, down approximately 20% from its peak.

In an odd way, a reset of BuzzFeed’s valuation would make its value more like traditional, publicly traded media companies. The value of newspaper company stocks have largely fallen this year. CBS’s value has dropped 12% so far in 2017.

BuzzFeed’s revenue growth might be rekindled, which means current investors might make money if it goes public in 2019. Management has already virtually ruled out an initial public offering in 2018. However, if BuzzFeed is sucked into the valuation cycle of more traditional media companies, and its growth continues to falter, the downward resets in its valuation may not be over.