BuzzFeed (NASDAQ:BZFD) has been a disastrous investment, if you bought it at its debut in 2021. Yet investors who managed to dive into BZFD stock in early January are sitting on massive gains right now.
Last month, two news items sent shares in this digital media company “to the moon” as it were. Trading for under $1 per share prior to the news, shares briefly hit re-hit prices topping $4 per share. While dropping by about 50% since then, the stock nonetheless remains up by triple-digits over a relatively short time frame.
In addition, the fact that shares have yet to cough back all of these gains may suggest to some that, after briefly cooling off, another big run is in store. However, taking a closer look at the recent news, and at the company’s (poor) fundamentals, put simply, it’s hard to see how this will be possible.
| BZFD | BuzzFeed | $2.34 |
Why Investors Have Been ‘Buzzing’ About BZFD Stock
With operating costs soaring, while revenue growth fails to catch up, it’s not a shocker that BuzzFeed shares collapsed between December 2021 and January 2023. Likewise, it makes sense why the aforementioned headlines have elicited a strong reaction amongst investors, but in the other direction.
On Jan. 26, the Wall Street Journal reported on two developments that investors believe bode well for the company, and for BZFD stock. First, the financial publication revealed that Facebook and Instagram parent Meta Platforms (NASDAQ:META) is paying BuzzFeed to help generate creator content for its popular social media properties.
Second, according to an internal company memo, BuzzFeed CEO Jonah Peretti plans for the media company, which besides its namesake platform, owns sites such as Tasty and HuffPost, to start using artificial intelligence, or A.I., to enhance and personalize some of its content.
A surface-level look at both these developments (especially the second one) signals a path to reduced costs and a return to profitability. Investors jumped back into the stock in a big way both on Jan. 26, and on Jan. 27. Again though, this latest “buzz” has begun to fade and could continue to do so.
Recent News Fails to Change the Story
Both these headlines may sound like potential game-changers for BZFD stock. Yet while these developments have enabled shares to zoom higher in the short-term, their impact, already easing, will likely be ultimately short-lived.
Mostly, because if you dive more closely into these news items, neither one really changes the story for this unprofitable company. The partnership with Meta Platforms sounds like a big deal at first, but not when you find out that BuzzFeed is only receiving $10 million per year to provide this service to the tech giant.
As for the A.I.-related story, it’s not as if BuzzFeed is on the verge of laying off its more than 1500 employees, replacing their output with content generated using ChatGPT. While the company is using publicly-available API from OpenAI, ChatGPT’s developer, to be clear, Buzzfeed has not entered a partnership with OpenAI.
Furthermore, as I noted above, BuzzFeed is using this A.I. technology to “enhance” certain content. For example, the quizzes are synonymous with BuzzFeed’s main sites. In other words, expect the company to continue spending heavily on labor and overhead. Barring a means to increase revenue, this points to continued poor fiscal performance.
The Verdict
In short, the market overreacted to the two recent news items with BuzzFeed. As some investors have dug into the details as I have, shares have pulled back, as it’s clear that neither the Meta deal nor possible future usage of A.I. will result in dramatic improvements to the company’s bottom line.
Instead, BZFD will likely continue to be unprofitable. For 2023, sell-side forecasts call for net losses of 45 cents per share, with net losses of 20 cents per share in 2024.
With this, chances are the stock will continue falling toward pre-spike prices. If management fails to implement a successful turnaround plan, shares could even hit new lows over the next twelve months.
As the latest news changes little about the company’s prospects, the best move with BZFD stock is to sell/stay away.
BZFD stock earns an F rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in META. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.