BuzzFeed, Inc. (BZFD) Earnings Call Transcript & Summary

Good afternoon. I'm John Black, genere analyst here at Cowen. We're pleased to have Jonah Peretti, Co-Founder and CEO of BuzzFeed, to talk about the BuzzFeed story. Thanks for coming. Appreciate it.

Thanks for having me.

Maybe recently kind of public. So maybe we can just start kind of high level, talk about the 3 kind of revenue lines, advertising, content, commerce, mix and kind of just high level what you're seeing across the 3 lines.

Yes. So our focus has been to build a really resilient, adaptable digital media company that can make content across all the different platforms that are out there, where young people, in particular, are consuming content. And so we have these iconic brands BuzzFeed, Complex, HuffPost, Tasty. And then we generate revenue as you say, 3 different ways for each brand and each piece of content. About half of our revenue is advertising, where we're just monetizing the attention that consumers are paying to our content. So that might be pre-roll or mid-roll on video. It might be programmatic or display, but just the classic, we reach 150 million people every month. They're seeing our content. We run adjacent advertising, and that's about half of our revenue. And then about 1/3 of our revenue is in this content bucket, and that's where we are getting paid essentially to make content. That might be branded content. It might be a show for a stream or everything from short form to long form, where we have to be -- turn that revenue, we have to be good at making content that people like and partner with brands to make content on their behalf. And then about the rest of the revenue is over 10% is commerce revenue, and that's where we're driving transactions. So if you go to BuzzFeed, you'll see all the shopping content, 23 genius inventions you never knew existed or the new clothes to get for summer, if you want to start working out what should you buy and people see that content, they click through and then we're getting a commission from Amazon, Etsy, Wayfair and all of those kinds of partners. And what's nice about having these 3 revenue things like if you think of a Tasty video, a single Tasty video might generate all 3 revenue forms, where you watch the Tasty video, there's a pre-roll or mid-roll ad, inside the Tasty video, there's maybe product placement or content, branded elements and you in the Tasty app can click through and shop the recipes at Walmart where you get -- where we're getting commerce revenue when people buy all the ingredients. And so we try to have multiple revenue lines to be able to make revenues on all different platforms in all different ways.

Right. Yes, multiple bites at the apple, that makes sense. And to that point, so you have -- you do have great brands that you've generated that you've recently acquired with Complex and prior HuffPost. And so you do have that kind of owned and operated component and then the third-party component. Could you kind of -- I don't know you hit on it, but could you talk about a little bit about kind of the relationships that you have with Facebook and Instagram and YouTube and TikTok?

Yes. So yes, about 1/3 of our consumption is happening on our own site and our apps. So sort of owned and operated properties, but a lot of consumption is happening on these platforms you mentioned. So you might watch the Hot One's show on YouTube, where celebrities eat increasingly spicy hot wings during an interview. You might go to -- on Facebook video and see Tasty recipe videos when you're trying to cook something, you'll find our content on Snap, you'll find it on TikTok. So we're putting our content in lots of different places. The mature platforms tend to have a revenue share model, which is a nice scalable advertising model, where if they put an ad in front of one of our YouTube videos, we take 55%, they take 45% and they're sort of powering it. If we sell it, we can get a higher percentage and higher rates. So a lot of the Hot Ones, for example, a nice flagship show. We're selling a lot of that out ourselves. So I would say, on the advertising -- on the mature platforms, there's that rev share. Unless mature platforms, we have to innovate more and figure it out ourselves more. So we have a product called UpShots, which is vertical video where a brand can come to us and get TikTok, YouTube shorts, Instagram Reels, all in one place. We make the content for them, short-form video that integrates their brand, and we put it across all of those. And that was something we launched this year at our new fronts, and it was really well received because new emerging platforms, they don't have good advertising models yet. They're not yet -- they haven't yet figured out commerce or advertising rev share models. So you've got to go in and make branded content that performs with the audience ahead of them figuring all that stuff, so you can be on those platforms to make money before they're mature.

That makes sense. Maybe we could talk about dividend similar area, but 2022 trends and drivers. And I think on the 1Q call, you guys discussed kind of macro, which everyone is feeling and the pivot to a short-form video as kind of -- as near-term headwinds, could you just give -- like explain that, the dynamic that's going on, with short-form video consumption and kind of piecing together where monetization is relative to kind of other content that you monetize?

Yes. So I think, first off, the preface of what I'm going to say, Facebook is a very competitive company that has changed and evolved over many, many years. And so I think, Facebook, they sort of successfully fended off Snap and Pinterest and various other threats. TikTok is a big threat, though. TikTok has taken share from the entire marketplace, taken share from YouTube, from Facebook, from -- I think, from Netflix. I mean it's hard to know how you measure these things because you only have so much time in a day to consume media. And if one thing grows, other things sometimes has to come from somewhere, even though there is more multitasking. I think that the TikTok -- TikTok taking so much share has caused these big platforms to have to really figure out, like in Facebook's case, they're really leaning into vertical video. They call it Reels. YouTube is really leaned into short, what they call Shorts. They're focusing on these formats even ahead of monetization because they know they need to do it to make sure they get parity with TikTok on these -- on this consumption habit. So I think that's a big impact you're seeing on the market, and it's affecting a lot of companies. From our standpoint, we are not one of the platforms, we're making content for all of the platforms. And so we have a cross-platform approach. And so we've seen a lot of growth on TikTok as TikTok has grown. Tasty had more views the first month of this quarter than all of last quarter on TikTok because -- and we're seeing with YouTube Shorts, our Land of the Boggs animated series is 10 million views a day on YouTube Shorts. So we're seeing a lot of growth, both from TikTok and from the sort of vertical video that YouTube and Facebook, Inc. have kind of added or Meta, I guess, have added to their offerings, but -- and so that's the upside for us, but there is downside in the sense that if TikTok is taking share from Facebook, and Facebook is spending less traffic to a BuzzFeed shopping post that might affect our commerce revenue or if TikTok is taking share from YouTube, and YouTube has a nice pre-roll model that could take share from that. And so our cross-platform approach in the long run makes us very resilient because we're able to move where we're making content to whatever platform is winning. But in the short term, sometimes there's an adjustment where you might see content revenue grow more quickly and advertising revenue grow less quickly because we can monetize TikTok with content. Our content revenue line grew 65% in Q1. So we're - we have the tool set to be able to adapt and evolve to the market. And that is why I think we're in a good position long term to navigate all these changes. We don't need to bet on Facebook or TikTok or YouTube winning in the end. We just need to bet that there's going to be a desire for differentiated content with brands that people know that can be generated at scale and promote and distribute it with good data and good data science, like all of those pieces are going to be true for all the platforms. And so that's what we focus on as we sort of play this sort of shifting game of looking at these platform wars and trying to figure out where we need to put more of our efforts.

That makes sense. And the Tasty example is interesting. Is it something that you get -- like that you guys did, you're like going through the year, you're ramping up your capabilities in short-form video with a great brand like Tasty? And it was just -- the content resonated. Was it something you guys did that the April numbers were better than the total 1Q or...

Yes. I mean we -- it's definitely something where we are watching platforms, and we don't want to be too early where we're putting tons of investment in a platform that may not actually scale up or -- but we don't want to be too late. So we try to time it where we start to see the inflection point where the platforms getting to that level of maturity where we feel like we can build a good business on it. Then we have the archive of all the content we created. So one advantage we have is if we go to a new platform like when Snap was new, we can go to Snap with the best of BuzzFeed from YouTube, edit it into a Snap-friendly format and then have this archive that gives us a boost on Snap. Then we can add to that content natively made for Snap. And so we've done this with other platforms. And so now with TikTok, we have a sense of how you do it. You use the archive, you use your brand, you -- and then you make stuff that's just for that platform that really leans into what people want on that platform. So we've taken that approach every time we see a new platform start to really emerge.

And you -- and this makes sense and Facebook's talked about it, yes, their monetization on Reels isn't what it is in feed or stories and -- but are you seeing -- or what do you envision for kind of new types of monetization against that type of content, that short-form video content. Will it be -- yes, I don't know, if you've noticed anything recently or how that might evolve?

Yes. So I mean, the first thing is the UpShots product and making branded content and short-form branded content is something we've done throughout our history. That's the first way we monetize. And so that's a good way, at least from our standpoint, a good way to monetize these platforms when they're in that growth mode, but they're a little bit less focused on the platform's monetization. Then I think what you'll see happen, and we saw this with Facebook video, Facebook video was new about 6 years ago. And then we saw initially, it was in-feed video that was very short. And so people would consume it in feed and not really kind of more similar to a TikTok is consumed. And there wasn't a way to put pre-roll on that because if you have a short little video and a pre-roll starts playing, you're the score right past it. And that's same with TikTok now, if you have a short video in front of a pre-roll ad in front of your TikTok, you just keep scrolling, right? What Facebook ended up doing was they started to learn more about their users' preferences. They started to favor longer content and they went to a mid-roll product. And so we kind of predicted TikTok is going to start allowing longer TikToks and then they did. And I think one reason for that is they're going to have some portion of the TikTok consumption be longer video that can have a pre-roll or mid-roll. I'm not saying that from any inside information how about TikTok. I'm just saying we saw it with Facebook, and we see the -- we understand the user behavior and we understand the sort of monetization. The other thing is, I think, TikTok as a company that has apps that are very popular in China, and those apps have commerce built-in, lots of live shopping, and those apps have other kinds of monetization. So they'll definitely want to test some of those in the U.S. And so we think that all the major platforms are going to be testing commerce partnerships where they're going to want companies like ours to make exciting shopping content and kind of do this UVC for the next-generation-type content where you're allowing people to shop right off of the video and their feed.

Great. Yes. No. Yes, there has been talk about -- and social commerce is a thing, and there has been talk of TikTok getting into commerce. And Facebook is trying really hard to do it. So that makes sense. So it will be interesting to see as we get through this year and the holidays, if there's anything like that, if you guys are seeing we'll check in on that. Staying on this topic, so the time spent was down a little bit in 1Q for BuzzFeed and that was because of the pivot or the shift of consumption to short-form video. Do you think there will be some kind of -- and that's not included in your time spent metric, and that's...

Yes, one of the -- so part of the platform maturation process, I already talked about the fact that the platforms start, you can monetize with content and advertising commerce come later. The other thing is measurement, and that goes with the advertising, until they get the Nielsens and the Comscores and the various third-party advertising. It's harder for them to partner on the advertising side. And so -- but it also means that time spent numbers are not included like on big Instagram Reels and the TikToks are not in our numbers. And so we can have a lot of time spent there, but it's invisible to us and the market, right? So I hope and anticipate that at some point in the future, they will flip that switch and be like, we now are supporting -- sharing time spend, and we now are supporting third-party measurement because we want to bring in certain types of advertisers who require it. And at that point, we'll see a sort of immediate jump in some of those time spent metrics.

No, yes. No, totally because anecdotally, we do these multi surveys and ask about consumption across a lot of the companies that we cover in, TikTok, people are spending an hour a day on, if that's not being captured and with Facebook leaning into Reels, if that's not being captured, then your number, rightly, you're calling out, like, hey, we're -- all right, it looks like we're down 4, but it doesn't -- but it's -- that's not real.

Yes, but it's also, at the same time, I can't make up a number, right? So we got to wait until the third-party measurement catches up so we can -- tell we can share that.

Let's pivot to commerce, which is a smaller part of the mix right now, it's emerging. Anything we should think about as we run through the year and towards the holidays that you guys are doing or maybe you're excited about on the commerce side?

Yes. So I mentioned earlier, video commerce is something that I think other countries have a lot of success, especially in Asia. I think all the big platforms are looking at video commerce. A lot of our affiliate business is driven off of our x-based content. So lists of cool products, you should buy, things like that. And so we would -- we think there's a big opportunity to start adding commerce into video, especially as the platform start to integrate that. And yes, I mean, I think, commerce has been really dynamic, obviously, with COVID shifting lots of behaviors. And we just finished our second complex land, which is a metaverse version of ComplexCon, which is a big confab, sneaker heads music fans come together for this big event. It's like a weekend event. And so during COVID, Complex figured out how to make complex land, which is this 3 metaverse one and sell products and have shoe drops and all these kinds of things in that space and that we continue doing even now once we've actually had Complex land -- ComplexCon back, we now have both of them. And so I think there's -- one of the things that COVID period did is it definitely led to lots of innovation experiments. And some of those things are just like, oh, remember when we used to do that because of this pandemic and never happens again, and others become long-term things that benefit the business and lead to new products over time.

That makes sense. And then maybe we could stick with Complex, and it was a big deal closed. I think it was last December. Can you just talk about the integration and the progress that you've made, and I think in the past, you may have talked about like when you acquired HuffPost and you're able to, revenue synergy is the wrong word, but just drive higher monetization at HuffPost. And so if you can just talk about just broadly the Complex integration, sales force and then monetizing the great content that, that brand has.

Yes. I mean so just briefly on HuffPost, we were able to really increase the revenue per impression. And -- that's something that our ad tech stack and the way we manage our products, I think, help us do that. There was also the benefit of the sales channel. So what I mean by that is we had a client who wanted to spend $1.5 million with BuzzFeed on a programmatic deal. They wanted to sort of max avails for a certain audience. And then because we owned HuffPost, they added another $1.4 million because HuffPost have a lot of that audience and you could extend it. So one salesperson, doing essentially double the revenue in the same amount of time and the same amount of effort. So you're getting this operating leverage of having more brands and more scale. Complex joining us, now we have combined the sales teams and the go-to-market for Complex and BuzzFeed, and that creates a lot of that kind of operating leverage as well. So we go to the market, if you go to a P&G or to a big diversified company, they want to reach men, we have Complex; they want to reach women, we have BuzzFeed, and we have a lot of co-ed audiences. We have -- you want Sneaker Heads or people in the fashion or people into music or you want people who are in to pop culture for like a movie, what's going on there? You can do -- you can have one conversation with a very diversified portfolio of brands, and you can do -- you can transact on all these different audiences and all these different formats. And so when advertisers are looking for a partner, they want to go to a partner that can deliver at scale. We call it influence at scale because it's brands and content that people are really invested in. We can do that with a lot more operating leverage than a fragmented bunch of smaller subscale digital media companies can do, where that client would have to go say, I'm going to go do the -- my razors here, and I'm going to go to my beauty products here and my this -- we can bring all that together into one conversation with one rep who helps you navigate this [ part of unit ]. And you get all the data and back end measurement and all the things that you -- that only a bigger company can provide.

So it should theoretically increase like the sales per head because you have -- as they're able to sell both? Or is that...

Yes. And it should -- like what we're doing is we are like looking at who it's an advertiser that only spend with BuzzFeed, what's an advertiser that only spend with Complex and then like how do you go to them and say, "Hey, we bought this new -- or we had this merger, would -- you have this whole line of products that you never would have advertised with us, but would you want to advertise over here?" And they're like, "Oh, cool." And so looking for just that incremental opportunity to have these clients then to do new offerings.

Right. That makes sense. And along those lines of going to clients, particularly in a just difficult environment with a lot of these platforms where there's a lot of fake content and negative content. You guys have brands that are trusted and safe content. And so how does that -- how do you -- how much of a luxury is that in this kind of environment, which has been hiding now for a couple of years, just your brand-safe content?

Yes, it's a real challenge for the industry, which is -- well, it's a real challenge for society. I think the heightened polarization, the things that are getting the most engagement on social platforms are things where there's essentially a deep fight and anger and emotion. So whether it's gun control or reproductive rights or racial justice or how to respond to COVID, vaccines and mass and all these things -- all these topics that have consumed our society are not the kind of place that most advertisers want to even be anywhere near, right? So there's this media consumption increasing around areas of polarization whereas media monetization is like, how do I cook a delicious meal for my family or how do I -- or what's an inspiring human story about someone overcoming the odds or a cool list of products to organize my house or even things like a lot of the stuff that Complex does, where it's cool sneakers and music and fashion and things that are about culture, but naturally also are -- create lots of opportunities for brands that want to be part of that kind of conversation. And so -- we have an advantage over -- or differentiation over the big platforms, which is that no matter how much they try, it's kind of hard for Facebook or YouTube to really control what content is on their platforms because they're not making the content, they're -- people are uploading the content like that felt amazing 5 years ago, 10 years ago, where it was like, we're getting all this content for free or we're paying a little rev share, and we don't bear any of the cost. Now it's like, oh man, the content is often not the kind of content that I feel proud of or that I want to show to my partners. And so we have a really big role to play for BuzzFeed, Inc. to be able to make brand-safe premium inspiring positive content across all these different platforms. And the platforms value it because they're like, we need more of this kind of content, and we can't tell independent creators to make this kind of content. We can -- I can go meet with them and our editorial teams can go meet with the big platforms, and we do and talk about, hey, we're going to make positive content that you're going to be -- your employees will be proud to having your platform, your partners and your advertisers will want to be associated with. And so there's a possibility of kind of dialing down some of this polarization and focusing more on the things that matter to people's lives and that aren't just about that reaction of emotion and polarization.

No, that makes sense. And so you've done a couple of acquisitions. And then the macro environment is kind of getting challenging for advertisers. You had Snap preannounced last week, and you have Twitter even though that are being acquired, doing the hiring freeze, same with Facebook and where I'm going is...

Twitter's being acquired?

Yes, I think so, yes. Yes.

The market doesn't seem that it is going to be acquired. I don't know.

Yes. Yes. It's been moving the around the stock. But just with the macro headwinds and maybe recession on the horizon, there are a lot of other brands that may be out there that may be attractive for a BuzzFeed to plug into their platform, into your platform. Can you talk about what you're seeing with private market valuations, if it has kind of come down like a lot of the tech public market valuations?

Yes. I mean in digital media right now, being a subscale independent digital media company is not where you want to be, right? So in that sense, cooking up with us is a great option because you get all of this investment we've made over many years in data science and our tech platform and the sales team that's in market and the commerce capacity, all these things, like if you're right now a subscale digital media company, you can't go to a VC and raise $40 million to like build out all this stuff. It's just -- there's just not that -- the capital is just not there. And you need that stuff because as I pointed out earlier, if you're making one video and you're making some money from commerce, some money from advertising, some money from branded content, that's like a much better model that should allow you to invest in your content. If you're not doing that, you've got to build it, but in order to build it, you need capital and if there's not capital, you get kind of stuck. And so I think there's a lot of good companies with good brands that are small and need a lot of the capacity we've already built out. And so I think that creates an opportunity for us to do more consolidation even with -- even if our stock -- like I feel like our stock is undervalued on -- but if you're a digital media company, you're in the same boat, you're like, okay, I think digital media is under value, too. If I -- if we do a stock deal, there's that appreciation that you could share in together as digital media starts to prove out that at scale, it can be a strong growing sustainable business. And so I think there's a lot of founders out there who are like, yes, we would love to going up and have that appreciation happen together.

Totally, yes. So we'll be on the lookout for that. Maybe -- and Felicia is not here, but just -- we have a couple of minutes left. On the -- just on the cost side on profitability, I think, we're forecasting a third straight year of positive EBITDA, and we have EBITDA rising throughout the year, and that's partially because of seasonality because 4Q is big for you guys. But how should we think about just longer-term EBITDA and profitability and cash flow generation, which is kind of in Vogue now in this market. But you guys are on the right track. And yes, how should we think about the runway of profitability runway, I guess?

Yes. I mean just philosophically, I like to increase our profitability while reinvesting in the future. And there's always a sort of balance of what's the right amount to invest in emerging platforms or things that maybe will pay off a year or 2 years down the road. But I think for the digital media industry, it's important for us as the first real publicly traded digital media company, pure-play digital media company focused on the millennial and Gen Z generation. It's important for us to show digital media can be a good business to be a profitable business. And so I think that especially in the current market climate, that's even more important. And so I think having financial discipline and being able to grow and innovate while having financial discipline is the skill that you really need in market. And we're -- we kind of grew up with a lot of change in resilience and shifts like when launched, the iPhone didn't exist and now we're majority mobile and the consumption, but we had to adjust the platforms, adjust to shifts in the market, adjust to COVID, and so building resiliency into our model and improving digital media is part of the mission for me is like showing digital -- it can be a strong business as a public company, a stand-alone independent company.

And I think we are out of time.

All right.

That was great. Thanks so much for doing the conference. We appreciate it.

Yes. Thanks for having me.

Okay.