Buzzfeed stock will soon go public via merger with a special purpose acquisition company (SPAC). The SPAC is called 890 Fifth Avenue Partners Inc. (NASDAQ: ENFA) but will soon be called Buzzfeed.
The digital media business model looks shaky to many investors – we talked about this when we covered the Vice Media IPO – but Buzzfeed is different.
Buzzfeed stock might be the one digital media company worth buying when it goes public.
Don’t let the clickbait advertising or the “junk food” content on the Buzzfeed site fool you. This is less about the content of the site and more about branding and relationships with the wider industry.
Executives at 890 Fifth have referred to Buzzfeed as an “M&A machine.” That’s what drives most of the interest in acquiring Buzzfeed. It has the potential to expand its horizons far beyond what it is today.
The company is valued at $1.5 billion. According to our own Shah Gilani, that is good news. Buzzfeed was valued at $1.7 billion in 2016, when digital media companies were all the rage in a season of heavy media industry consolidation.
So, though Buzzfeed is worth less today, it mostly held its value despite overinflated media valuations in 2016. While other media companies either failed or were gobbled up since then, Buzzfeed held on.
Now, we’ll show you the right way to play Buzzfeed stock when it goes public.
What Is Buzzfeed?
Buzzfeed is a New York–based news and entertainment company. It was founded in 2006 with the goal of making and sharing content that would go viral.
Today, it is known for just that.
The company is now infamous for publishing viral online quizzes and pop culture commentary. But it has also stretched its legs into business news and political content.
Buzzfeed hired Politico journalist Ben Smith in 2011 to that aim and has since won a Pulitzer.
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At the time, Buzzfeed News was a section on the main Buzzfeed site. More recently, the company has separated its news site, Buzzfeed News, from its more casual content.
The company’s large umbrella of content and brands is what makes it such a desirable acquisition candidate. Its name has a proven versatility that has stood the test of time so far.
Before we get into how to play this stock, here’s what you should know about the upcoming Buzzfeed SPAC merger.
Is Buzzfeed Profitable?
Buzzfeed is profitable, and the company projects revenue will increase substantially over the next few years. It generated $321 million in revenue through 2020 and now expects $521 million in 2021.
Then, in 2022, the company expects to rake in $624 million, a 94% increase from just two years prior.
Forty-one percent of Buzzfeed’s business consists of ad revenue. Its viral content makes up 48%. But with the ad market scaling up after the pandemic and further merger activity, Buzzfeed expects the ratio to be 44% ads and 25% original content by 2024.
Buzzfeed and 890 Fifth Avenue expect to close their merger deal by the end of the year. What makes this such a huge deal is that Buzzfeed will join Complex Networks, Tasty, and HuffPost under the same umbrella.
That’s right. Buzzfeed also plans to buy Complex Networks for $300 million. If you’re unfamiliar, this is another big-time media company responsible for hits like First We Feast and other food and culture content.
The addition of Complex gives Buzzfeed exposure to “a more male and more diverse audience,” according to Buzzfeed CEO Jonah Peretti. Combined, Buzzfeed and Complex attracted more than 110 million visitors to their sites in May.
Complex is also on track to reach profitability in 2021.
But that’s only a small part of what could drive up Buzzfeed’s value within the next decade.
Why the Buzzfeed SPAC Merger Is Important
With this SPAC merger, Buzzfeed leads a movement in the digital media space that could make the industry look notably different in a few years.
Buzzfeed CEO Jonah Peretti sees the company spearheading another round of consolidation in digital media. Similar to what happened in 2016, companies will start acquiring each other, trying to complement their brands, but only few will remain.
Other digital media giants like Vox Media are currently debating SPAC mergers as well. But it’s likely Buzzfeed might gobble up the whole pie.
Along with Complex, Peretti says there will be “more acquisitions in the future.” This will probably be because the company has all the technical tools that other digital media outlets want.
This is what has enabled Buzzfeed to get viral content down to a science. Buzzfeed’s data science and distribution network specifically played a role in attracting Complex to the deal.
This could lure plenty of other digital outlets in the future. This merger essentially sets the table for a digital media buffet, with Buzzfeed first in line.
Here’s how you play Buzzfeed stock while all this goes down.
How to Play Buzzfeed Stock
If you want to take a chance on Buzzfeed dominating the digital media industry, you can buy ENFA stock for under $10 today and wait for the shares to convert to Buzzfeed.
Of course, you should be wary of the digital media space. While Buzzfeed is a prime contender to win, it is also one of the messier markets. Go in ready for a surprise.
Your other option comes directly from Shah Gilani, Money Morning’s Chief Investment Strategist.
Shah is eyeing the stock warrants associated with ENFA, trading under ENFAW. They traded from $0.70 to $1.44 through the month of June. There’s a chance they could go back down to $0.70, and if they do, Shah likes buying those.
A stock warrant sounds similar to a stock option. Both give the holder the right to purchase a stock at a specific price and date. The difference is that a stock warrant comes directly from the company representing future capital, while a stock option is an agreement between two traders.
Similar to options, there are call warrants and put warrants. A call warrant is the right to buy shares at a certain price. A put warrant is the right to sell.
To purchase a warrant, all you need is to search the ticker with your broker, same as any stock. You’ll see that ENFAW is on its way down, at $1.28 right now. If it gets to $0.70, that’s a buy opportunity ahead of the SPAC merger.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.