Many people believe that penny stocks are those that trade below $1. That is not the official definition. The threshold is widely defined as below $5. BuzzFeed’s stock recently closed at $1.66, down from a year’s high of $14.77.
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If the upcoming recession is like those in years past, media companies will be particularly hard hit by falling ad demand. In the most recently reported quarter, BuzzFeed’s revenue was $92 million. Of that, $49 million was adverting. If history is any indication, the pace at which that figure has grown will drop off, and the figure may even fall year over year.
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The most obvious problem BuzzFeed faces is that, in a declining market, companies that lose money usually take an above-average beating. BuzzFeed lost $45 million in the most recently reported quarter. In the quarter a year ago, the comparable number was $11 million. This is old news, but it does show BuzzFeed faces a struggle if ad demand slackens in a difficult economy.
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There is an argument to be made that the 50% or so drop in BuzzFeed’s stock over the past month is part of a much wider reaction in the market. As the market collapses overall, some promising companies are pulled down, even if they do not deserve to be part of the sell-off.
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As a recession starts, management has a chance to prove it can keep revenue rising at a brisk pace. Otherwise, recovery in the share price will be extremely difficult.
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