For BuzzFeed, Now Earnings Count

Because an investor lockup ended, shares of BuzzFeed, the digital media company, dropped over 40%. For whatever reason, investors hit the doors. Most of them were institutions with money in BuzzFeed. Others may be current or former employees. The smart money wanted out.

It is hard to imagine why anyone with confidence about the future of BuzzFeed would sell now. The stock bottomed at $2.20, down from a high of $14.77. The stock is cheap. Perhaps some of these investors received shares at even lower prices before BuzzFeed went public. Nevertheless, if they believed in BuzzFeed’s plans and the market it operates in, they would have held on through the selling storm.

BuzzFeed’s market cap has dropped to $300 million. Its sales in the most recently reported quarter were $92 million. That means the revenue run rate for the year is close to $400 million. Adjusted EBITDA was poor for the period, a $16.8 billion loss.

BuzzFeed remains primarily a traditional online media company. Although large compared with most media companies, this means it competes with giants Amazon, Google and Facebook. Investors clearly do not think this is a fair fight.

BuzzFeed’s ad revenue will be fragile in a recession. Advertising almost always is. Over the past two decades, traditional media companies, whether print or online, have learned that difficult lesson.

If BuzzFeed’s stock is going to recover, it will be solely on the back of results. Its second-quarter forecast was grim. That leaves the second half of the year to prove it can post strong results and gain back investor confidence. If there is a recession, that is when it will begin.

BuzzFeed has been under pressure to cut costs. Some investors want Buzzfeed to shutter its expensive news operation. That may save money short term, but it will deprive the company of its flagship, and much of its editorial reputation.

What is BuzzFeed’s path to better results, and perhaps a stronger share price? As the economy softens, the answer is in cost reduction.

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