With internet media firm BuzzFeed (NASDAQ:BZFD) announcing layoffs along with the dissolution of its journalism arm, the disclosure couldn’t be more ominous for both BZFD stock and the broader digital content space. Still, for daring gamblers, BuzzFeed could be a super-speculative bullish wager. Basically, the company can now focus on what works and not waste time on what doesn’t. Therefore, I am cautiously bullish on BZFD.
The End May be the Beginning
As TipRanks reporter Sirisha Bhogaraju mentioned, BuzzFeed announced that it will close its Pulitzer Prize-winning news division. The move represents a key component of a new wave of layoffs that will reduce the media enterprise’s headcount by about 15%. On paper, it’s the end of BuzzFeed News. However, it may also be the beginning of a new look for BZFD stock.
“While layoffs are occurring across nearly every division, we’ve determined that the company can no longer continue to fund BuzzFeed News as a standalone organization,” said BuzzFeed CEO Jonah Peretti. Interestingly, Peretti later admitted that he overinvested in the news division because he loved the platform and its mission.
In addition, the chief executive “cited an array of reasons for the company’s ongoing actions, including a slowdown in digital advertising, the impact of the COVID-19 pandemic, a fading SPAC backdrop, a downturn in the tech market, and difficult macro conditions,” per Bhogaraju.
All told, BuzzFeed will remove employees across its business, content, tech, and administrative teams, wrote Bhogaraju. Plus, it may consider axing jobs in certain international markets.
Naturally, the pink slips recall the painful disclosures of major technology firms in 2022. Both Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) and Meta Platforms (NASDAQ:META) sounded the alarm about the erosion of the digital ad revenue market. Essentially, without those dollars, internet media firms will crumble.
Still, an opportunity exists for BZFD stock if management pulls off the recovery effort correctly.
BZFD Stock Can Have Permission to Chase the Dollars
A Harvard Business Review article pointed out decades ago that both media enterprises and governments tend to cynically flourish in crises. When such crises don’t exist natively, these entities create them. For the media, in particular, the generation of controversy attracts advertisement dollars. Again, the process is terribly cynical. Nevertheless, moving forward, BuzzFeed might not have a choice. In other words, BZFD stock may receive permission to chase the dollars.
Peretti hinted at this possible strategic pivot when he mentioned overinvesting in BuzzFeed News. It’s odd phrasing. For example, good parents wouldn’t say they “overloved” their children – the more, the better. However, with Peretti’s relationship with his company’s news division, he admitted to letting emotions get in the way of a proper business model.
Certainly, as a member of the public, Peretti would want nothing more than to receive access to truthful, accurate reporting of important events. However, as a paper published by Harvard University revealed, “Powerful forces motivate news providers to slant and increase bias rather than clear up confusion.”
Bluntly speaking, the public receives information from media outlets in part because a monetary incentive exists. Without such incentives, that information might not be disseminated. It’s an ugly reality, but it’s the only reality. With BuzzFeed having fully accepted this situation, BZFD stock may move forward.
Unfortunately, the underlying enterprise will not have Pulitzer Prize-winning heroes. However, society doesn’t care about heroes. If it did, they’d probably get paid more.
Moving forward, Peretti mentioned that artificial intelligence (AI) would represent a cornerstone of the sales process. On the content generation side, BuzzFeed can leverage AI to cut down on research time, thus producing quality pieces at greater volume.
On the distribution side, the digital media specialist can take advantage of machine learning to discern which content categories will be most attractive to readers and, by logical deduction, advertisers. While offering no guarantees, BuzzFeed is at least pivoting its business to maximizing profits, not necessarily principles.
Shaky Financials
While BZFD may emerge from the other side with a revitalized business model, getting there won’t be easy. Most worryingly, for anyone bold enough to try their hands at BZFD, the underlying company suffers from poor financials.
Primarily, its balance sheet stability presents arguably the biggest concern at this juncture. With a cash-to-debt ratio of 0.24 (worse than 90.4% of its peers), BuzzFeed faces choppy waters ahead. Also, its Altman Z-Score (a solvency metric) pings at -1.32, indicating distress and a higher-than-average risk of bankruptcy within the next two years.
Finally, both its operating and net margins sit well in negative territory. Therefore, BZFD stock faces a credibility crisis.
Is BZFD Stock a Buy, According to Analysts?
Turning to Wall Street, BZFD stock has a Hold consensus rating based on one Buy, one Hold, and one Sell rating. The average BZFD stock price target is $1.65, implying 179.1% upside potential.
Conclusion: BZFD Stock Can Benefit from a Refocused Strategy
As BuzzFeed’s CEO admitted, he chased principles over profits when managing BuzzFeed News. Unfortunately, you can’t do that in a cynicism-driven internet media market. Now that the lesson has been learned, the company can refocus, and refocusing just might benefit BZFD stock in the long run.
