BuzzFeed, Inc. Q3 FY2023 earnings call

Challenges Faced

• Digital media companies face audience traffic referrals from major platforms diminishing as they prioritize their own vertical video formats, impacting content monetization.

Actions Taken

• Reprioritized editorial and creative resources to focus on platforms/formats with long-term monetization potential.
• Changed sales organization to align with weaker demand, reducing layers for efficiency.

Brand Performances

• BuzzFeed: Launched AI-powered content formats; audience traffic to original AI content was over 60% higher than non-AI content; chatbot games drove deep engagement.
• Complex: Tentpole content performed strongly; Q3 viewership on flagship YouTube series grew ~40% YOY; preparing for ComplexCon.
• First We Feast: Season 22 of Hot Ones went viral; launched spin-off series Heat Eaters and Hot Pockets; IP success serving as a blueprint.
• Tasty: Introduced new vertical video series and collaborations; teamed up with Bush's Beans for a meal planner campaign.
• HuffPost: Drove record audience traffic to homepage and web app; launched new podcast; shopping content saw double-digit GMV growth during Prime days.

In Q3 2023, total revenues were $73.3 million, down 29% year-over-year. Advertising revenues declined 35% year-over-year to $32.6 million. Content revenues declined 32% year-over-year to $26.2 million. Commerce and other revenues were $14.5 million, down $0.5 million or 3% year-over-year. Adjusted EBITDA in Q3 was $3 million, a $5 million improvement versus the year ago period. Advertising revenues contributed approximately 44.5% of total Q3 revenues, content revenues contributed around 35.7%, and commerce and other revenues contributed about 19.8%.

Q4 Guidance

• Expected overall revenues in the range of $99 million to $110 million, 18% to 27% lower than the year ago quarter.
• Expected adjusted EBITDA in the range of $20 million to $30 million, approximately $8 million higher year-on-year at the midpoint.
• Anticipates modest improvement in quarter-over-quarter revenue lift compared to last year, with full benefit of restructuring actions and seasonal lift in Q4.

Risks

• Platform traffic and monetization challenges due to major platforms prioritizing their own vertical video formats and being slow to monetize and share with publishers.
• Macro environment uncertainty putting pressure on advertiser demand.
• Need for new initiatives to ramp up and scale to offset traffic and monetization challenges, which takes time.

Q: From just a short-form content perspective, can you help us frame the revenue opportunity or trajectory in terms of short-form content?

A: Major platforms are in competition for audience share around vertical video formats. We have great relationships with platforms and are beginning to share in short-form monetization. We've realigned resources to focus on fast-growing platforms/formats and are packaging products for direct selling to marketers. We're seeing validation of our strategy but more work is needed to scale initiatives.

Q: A couple of months ago, Amazon announced BuzzFeed as one of its partners in terms of its sponsored products, advertising. And I'm just curious sort of from your perspective, why did Amazon choose BuzzFeed? How is the partnership progressing? And can you speak to materiality or potential for this ad monetization?

A: We're thrilled to be selected as a trusted partner. They chose us for our scale and audience reach. We have a long-standing relationship with Amazon related to affiliate and commerce business. It's early to fully reap benefits but speaks to the strength of our affiliate model and driving conversion.

Q: In terms of the relationship between revenue growth and cost growth, how should we think about the relationship between revenue growth and cost growth into next year into 2024?

A: We're operating in an unprecedented digital media environment. We're focused on driving audience traffic to owned and operated sites, scaling AI products, and improving execution. We've taken steps to reduce operating expense and cash cost structure. Q4 guidance reflects full benefits of these actions, and we enter 2024 with a leaner cost structure to meet market challenges.

Q: In your view, is the business still positioned to capture revenue synergies from the combined brand portfolio?

A: We have strong differentiated IP with distinct brand voices. We feel fortunate to have these brands. Building new brands is hard in current market. Our brands have broad awareness and love, providing strategic value and revenue opportunities even in tough market.

Q: Given the revenue trends and current cash position, is the company considering asset sales or other options to access additional liquidity?

A: At end of quarter, we had $42 million in cash. We've taken steps to reduce cash cost structure. We're focused on driving direct traffic, improving sales execution, and seeing green shoots from sales reorganization. We're always looking for ways to reduce cash costs and optimize liquidity but no specific plans for asset sales mentioned yet.

Q: Based on your Q4 adjusted EBITDA guidance, it looks like you're now expecting full year profit slightly below the guidance you had shared back in May. What has changed since Investor Day with respect to bottom-line expectations?

A: Audience traffic referrals from major platforms declined further as they prioritize their own formats. We've faced macro headwinds across advertising market, vertical video, audience consumption, and integration efforts. Despite pressure on top-line, we delivered improvements in bottom-line in Q3. Q4 guidance assumes full operating expense benefit of cost actions, expecting Q4 and full year adjusted EBITDA above year ago levels.