BuzzFeed Becomes a Penny Stock

After Buzzfeed Inc. (NASDAQ: BZFD) laid off 12% of its staff and reaffirmed its fourth-quarter guidance, shares of the online media company dropped to $0.95. They have a 52-week high of $6.37.

In the most recently reported quarter, the effects of the shaky advertising market were already on display. BuzzFeed lost $27 million on revenue of $104 million. The company ended the quarter with $59 million in cash and cash equivalents.

BuzzFeed went public via a SPAC a year ago. In the few weeks after that, people bought the stock on the open market for over $5 a share. Due to BuzzFeed’s early quarterly financials, the shares were at $2 by June, so early investors lost 60% of their money.

What are the odds of recovery? In the next year, almost nil. A recession will keep advertising revenue across most media low. This already has shown up in the results of larger media companies, from Gannett to Paramount. BuzzFeed’s only path to profitability is ongoing cost cuts. In this, it can follow Gannett’s lead. Gannett fired several hundred employees last week as newspaper advertising faltered.

BuzzFeed is fortunate that it has a large portion of its revenue from creating custom content for other companies. This represented $38 million of its $104 million in revenue last quarter. It remains to be seen if the recession affects this business as much as it does advertising dollars.

No readily accessible database shows how many stocks that drop under $1 stay below that level permanently and how many recover. BuzzFeed is on the edge of profitability. Its ability to keep revenue at levels the same as last year is a major challenge. That leaves it with a modest cash balance to ride out a brutal storm, with its only real leverage being a head count reduction. For the stock to trade well above $1 will need an economic recovery. It has run low on costs to cut.

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