Q2 2022 BuzzFeed Inc Earnings Call

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Good afternoon, and welcome to the Buzzfeed, Inc. Second quarter 2022 earnings Conference call.

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I'd now like to turn the conference over to Amigo from Korea, Senior Vice President of Investor Relations. Please go ahead.

Hi, everyone welcome to Buzzfeed, Inc. Second quarter 2022 earnings Conference call I'm, Amit at some Korea SVP of Investor Relations join.

Joining me today are founder and CEO , Jennifer Eddie President Marcello, Martin and CFO Felicia de La Fortuna.

Before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statements.

Actual results may differ materially from those contemplated by these forward looking statements.

Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10-Q filed with the SEC.

Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

Yeah.

During this call we may present, both GAAP and non-GAAP financial measures. The use of non-GAAP financial measures allows us to measure the operational strength and performance of our business to establish budget and to develop operational goals for managing our business.

We believe adjusted EBITDA and adjusted EBITDA margin are relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by our management.

A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.

The press release and an investor presentation are available on our website at investors that Buzzfeed dotcom.

And now I'll pass the call to Jonathan.

Hi, everyone and thank you for joining us on today's call I will discuss our second quarter results and share with you. How we are preparing the business to navigate an increasingly volatile and uncertain economic outlook.

Context for that discussion I will first share my perspective on the complexity of the current operating environment.

As we sit here today, so many communities businesses and individuals around the world are managing through a seemingly endless list of disruptions economically socially and politically our target audience has been deeply impacted in fact, we believe that young people are bearing the brunt of these challenges over the past few years they have been met with.

Rising cost.

Rising social and political debate and a disruptive and uncertain start to their college and professional careers young people deserve more and I believe Buzzfeed, Inc. Has an opportunity to help them have a louder voice in a more meaningful impact on the world we.

We are already a leading youth media brand for Gen Z and millennials, but I believe we can do more each of our category leading brand has an important role to play in representing the diverse voices are young audiences.

Through our content, we can empower young people to amplify their voices elevate their experiences and make the world and the Internet a better place.

We can also help them find moments of Joy and entertainment along the way.

We are living this missing in our own company by empowering the young people in our teams to be bold in their work here.

In the second quarter, our teams demonstrated focus and resiliency in the wake of the rapid shift to short form vertical video and increasing macroeconomic uncertainty delivering financial results in line with our May outlook.

We grew revenues by 20% year over year to $107 million, resulting in adjusted EBITDA of $2 1 million.

Revenues continued to pace above pre pandemic levels for both Buzzfeed and complex fueled by our massive audience proprietary first party data and cross platform scale.

While market conditions are tougher our value proposition is stronger than ever advertisers and platforms continue to seek us out as a trusted partner to effectively reach young audiences and meet the growing demand for our brands they culturally relevant content.

According to third party reporting overall U S time spend on social media continued to grow year over year led by Tictoc.

Although our reported bank continues to be pressured by the ongoing platform shift we did observe some encouraging trends in audience consumption in Q2.

Our content teams rose to the challenge of published more vertical video content on pitcock than in any prior quarter.

And tasty continues to gain incredible momentum on the platform with Q2 views more than tripling versus Q1.

More broadly we're continuing to grow engagement in our vertical video content across platforms with Q2 views across tick tock, Youtube shorts, and Instagram real reaching their highest level of any prior quarter.

Quarterly views on Instagram rails alone surpassed 1 billion for the first time fueled by increasing demand for exclusive creator live content on the platform.

Last quarter I spoke about the biggest challenges our advertising partners are facing.

Reliable audience data navigating the world of Influencers, and creators and leaning into the platforms and formats, where audiences are going next.

These challenges persist.

Demand for creator led vertical video continues to grow and the major platforms need help to fuel content development broke consumption on their own platforms to fend off competition.

Against this backdrop, our proprietary first party data is instrumental in attracting adds that according to Comscore Gen Z and millennial audience to spend basking more time consuming our content and that of any other pure play digital media company.

This rich dataset is powering our first to market vertical video products and industry, leading creator programs and we are putting these solutions to work for our clients and partners to help them reach their target audiences effectively across new platforms and formats.

In addition to the massive shift to short form vertical video. We are also contending with a deterioration in the macro environment.

It is clear that the combination of inflationary pressures rising interest rates and ongoing supply chain disruption is having an impact on advertising spend.

In terms of year over year trend, we saw mixed results across our largest category.

Heck in retail where the most pressure while financial services exhibited robust growth, notably CPG recovered from year over year declines in Q1 to end the quarter flat and our emerging categories, namely auto restaurants and services have continued to grow rapidly through the first half of the year.

According to Morgan Stanley Research, we know that during the last recession in 2009 the rate of growth for performance based ads been slowed but did not decline. We also know that 2021 was a record year for growth for digital advertising.

Media budgets, they're not going away and we are helping our advertising partners drive strong returns in this environment.

As budgets get squeezed our clients know, we can help them identify creative ROI focused solution.

With the addition of performance based products over the last few years, we have been able to expand our relationship with key clients across multiple categories. In fact, a number of our annual client relationships are rooted in efficient media products and this ROI driven partnership model continues to serve us well.

Looking ahead amid the dual dynamic of the ongoing platform shift and macroeconomic uncertainty, we expect Q3 revenues and profits to trend below Q2 levels that being said, we are hearing clear consistent feedback from our clients that they need help to deploy limited budget in the most efficient way possible.

In this environment, our role extends beyond simply executing our clients' campaigns effectively we are a critical strategic partner, helping them allocate limited spend to maximize return.

Our consultative sales approach and diversified product offerings enable us to quickly and effectively adapt to our clients' needs as priority shift further cementing our position as a one stop shop for advertisers.

We are a resilient diversified digital media company with the ability to shift between different models like content advertising and commerce.

We have worked to create a flexible cost structure that allows us to adapt to market conditions. We have successfully navigated multiple economic downturn and seismic industry shift and I am confident we will do so again.

To this end we are proactive aligning our cost structure to match the anticipated demand environment. The integration efforts, we announced earlier in the year are beginning to yield results. In Q3. This has allowed us to employ a critical hiring process guided by our highest priority initiatives vertical video creators and monetization, we also see opportunities to screen.

<unk>, our processes reduce our real estate footprint and operate more entrepreneurial.

Together. These actions will also help us preserve cash over the coming quarters.

As we further optimize our business operations I'm excited to welcome Marcello Martin to the team as President of Bud Beat Inc. She brings 25 years of experience across financial operational and deal making roles at global publicly traded Tech and media company I'm confident that Marcellus extensive background in broad perspective.

We will make her an invaluable partner to me in Buzzfeed next chapter of growth.

Thank you John now I'm curious, who joined Buzzfeed unexciting about the opportunity to work with Hudson patented and high performing team.

I'm inspired by the company's mission and growth prospects and look forward to partnering with you and the team to help shape and execute against the company's long term strategy.

Thanks, Marcella I'm really looking forward to collaborating before I pass the call to Felicia I want to acknowledge our talented network of creators journalists and producers who are continually striving to uplift the voices of the most diverse most online in most socially engaged generation the world has ever seen.

The younger generation is poised to take over the world and we are proud to help facilitate this generational change into the guard as a preferred media company for millennial and Gen Z audiences. I also wanted to thank our shareholders and partners for their continued support as we execute on our vision to make the internet a better place with that I will turn the call over to.

Felicia to take you through our financial results and outlook.

Thank you Shannon and good afternoon, everyone.

We delivered second quarter results in line with the low end pardon me outlook for both revenue and adjusted EBITDA.

Revenues grew 20% year over year to $106 8 million, reflecting the growing strength of our unified go to market strategy across Buzzfeed complex T and huffpost.

With a larger audience, a wider range of brands and a more diversified product offering than ever we are a critical strategic partner to our advertising clients looking to maximize returns in a challenging environment.

As a complimentary revenue reporting we also measure audience engagement across our owned and operated properties and third party platforms.

As John discussed we are rapidly increasing our presence on tick tock with more videos published in Q2 than ever before.

And based on our internal tracking short form vertical video piece, a cross platform continues to grow rapidly, reaching their highest quarterly level and giving us further confidence that we are well positioned to monetize these newer formats over time.

You asked 10 spend as reported by Comscore, which does not include ticked off guard rails declined 19% year over year to 154 million hours in the second quarter driven by Facebook as short form vertical video format continues to gain audience share.

Although industry standard reporting on audience time spend does not yet reflect anywhere platforms and formats. We are encouraged by the engagement trends around our vertical video content across platforms.

Turning to our Q2 results by business.

Advertising revenues grew 11% year over year to $53 2 million as growth on our owned and operated properties offset declines on third party platforms.

The 'twenty 'twenty. Two results include the acquisition of complex networks, which closed in December 2021.

As expected the rate of advertising revenue growth decelerated versus Q1, as the macro backdrop contributed to downward pricing pressure and a slowdown in AD spending primarily among our tech and retail client.

Content revenues grew 66% year over year in line with Q1 trends to $40 3 million.

The 2022 results include the acquisition of complex networks, but these studios also contributed to the result.

Commerce revenues declined 22% year over year as expected to $13 3 million against elevated spending during the pandemic in the year ago period.

Additionally, as discussed last quarter, our commerce business is still emerging with the majority of audience traffic through our shopping content generated through Facebook ads.

So commerce revenues are also impacted by the increased competition for audience time.

Adjusted EBITDA for the quarter was $2 1 million in line with the low end of our outlook consistent with the revenue performance. We also incurred charges that did not impact adjusted EBITDA, including $11 million in stock based compensation higher quarter over quarter, driven by the recognition of certain restrict.

Good stocking it's granted to employees in the years prior to becoming a public company.

<unk> 9 million of depreciation and amortization with the year over year increase attributable to the recognition of intangible assets associated with our acquisition of complex networks and $5 million of interest expense largely related to our convertible note financing.

We also recognized a $12 million gain relating to the revaluation of our convertible note financing and warrant liability.

We ended the quarter with cash and cash equivalents of approximately $68 million.

Before I discuss our outlook for the third quarter, let me first share some of the current trends we are seeing across the business in order to provide context for the financial outlook.

Starting with time spent as discussed critical video formats are capturing an increasing share of audience time pressure and consumption on traditional and digital platforms and because the fastest growing vertical video platforms, including tick talking to Instagram or not currently captured in our time spent metric we expect continued year over year declines in.

Reported time spent.

However, we are encouraged by the progress we are making across these newer platforms as we continue to grow our peds and some tick tock and increased our distribution of vertical video content across platforms, we are well positioned to drive scale monetization over time.

On revenues as Genesis passed we see evidenced across our client base that AD budget continues to be pressured by the broader macro economic backdrop. As a result, we expect both advertising and content revenue growth to slow in Q3 as compared to Q2.

Toward the end of the second quarter, we witnessed an increasing number of clients exercise more caution and committing to current spending levels for the back half of this year and turn visibility into Q3 revenues at this point in the quarter, it's lower relative to historical trends in our business.

Additionally, as consumption on third party part one continues to be impacted by the shift in audience time, we expect ongoing pricing pressure in Q3 relative to Q2.

We expect year over year trends in Q3 Commerce remedies to show considerable improvement versus Q2, driven by strong performance during July as Amazon Prime day and easing comps.

In terms of adjusted EBITDA, we are taking proactive steps to align our cost structure to the weakening macroeconomic environment.

We expect to drive operating expenses lower sequentially as we realize the benefits of the integration actions, we announced earlier this year.

And the actions, we are taking to slow hiring and reduced our real estate footprint. Among others are expected to drive further reductions in Q3 and future quarters.

Full execution against these plans will also help us preserve cash over the coming quarters.

With that I will turn to our financial outlook for Q3, 2022.

We expect overall revenues to grow in the range of 4% to 8% year over year, we expect to generate adjusted EBITDA losses in the range of $5 million to $10 million and we expect stock based compensation expenses in the range of three and a half to four and a half million dollars.

Although the fuel dynamics of the ongoing platform shifts and a weekend weakening macro environment presents some near term headwinds I am confident that with increased operating rigor. We can help our partners successfully navigate the biggest challenges they are facing in the market place today.

In doing so we expect to further cement our position as the leading use media company and a trusted one stop shop for our advertising clients.

Thank you I'll now turn the call over to the operator, so we can take your questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question will come from John Blackledge of Cowen. Please go ahead.

Oh, great. Thank you a couple of questions are around the around the guide.

Maybe John if you could just discuss what you're seeing the current ad environment.

How that informed the guide and then.

You know and I think we should just talked about is just the how all the softness should impact the three.

Segments advertising content and commerce and how much of the guide was driven by by AD softness macro versus shipped as short form video and then another just another on on the back half of the year I imagine there's limited visibility, but any way to think about for Q.

Would be would be helpful as well thank you.

Thanks, John .

So on the first.

Question.

On advertising.

We're we're seeing a lot of mixed signals in the market, we're seeing strength in consumer spending.

And and a lot of.

Somewhat bullish signals, but then we're also seeing in certain sectors advertisers pulling back we mentioned.

The tech sector was one one area, where you know probably.

Probably not surprisingly given the shifts that have happened in the tech industry, they're spending less.

On marketing and advertising, but then financial services came in very strong in Q2. So we're seeing a lot of mixed signals, which causes us to be somewhat cautious with with our forward guidance to make sure that.

We are able to anticipate changes that we might see in the market.

Our main focus is in a market like this is not to try to perfectly predict what the market is going to do but to have a diversified.

Portfolio.

The segments that we partner with on the advertising side and then the.

Advertising and commerce and content revenue lines, so that we can bundle and package and adapt as the market as the market shifts.

And then in terms of your question about short form video in that in that shift I would say most of this is is more macro shifts that we're seeing seen in the market.

And less about the larger platforms.

Okay to add incremental color John's here to your question. So in terms of the dynamics of the plot harvest, yes, we have been discussing that over the last couple of quarters, and so with Facebook being the most mature of the platform commerce still being an emerging business you continue to have the impact.

M Commerce revenue.

In Q3, However, you do have the addition of Prime day in Q3, as well as easing comps because as you know in 2021 in the first half we had you know it depends on Nick Hi.

Versus the back half of 2021 for advertising Jenna mentioned B.

The mixed signals that we are seeing in overall vertical spending so tech and retail continued to be challenged.

In Q3, while we're also seeing positive signals in larger verticals like entertainment and financial services.

Earl our distributed network associated with the time spent shift continues to be impacted from an advertising perspective, and then from a macro environment perspective, we have noted the pricing pressure on our owned and operated property.

And then lastly, I would note as it relates to content, we have scaled our content business as well as diversified our product offering. However, our total content is still heavily leaning into branded promotional content and so therefore, we do expect with the macro economic headwinds for the branded promotional content to bemis.

Impacted in Q3.

Okay. Thank you very helpful.

So the last part, which I always just noted that I forgot in terms of your question on Q4, we do expect from a historical perspective, the same at the seasonal lift that we tend to see in Q4. So we do anticipate that being the largest quarter and we have a we believe that the advertising seasonality will still follow.

Historical quarters that would be yes, and one more note on the on the platform shifts to the short form vertical video.

As Felicia just noted there is a small percentage of our advertising revenue that comes through Rev share.

And that Rev share.

With more traditional products like the longer form video on Youtube and Facebook as that starts to be replaced by more short form vertical video that that impact that advertising revenue, but we also know that all the major platforms Youtube Facebook tick tock Instagram are all working on monetization solutions for vertical.

Video that will bring back various forms of Rev share for for content providers and creators.

So we're anticipating that as this platform shift happens there'll be more Rev share and advertising revenue in passive platform revenue.

As these platforms figure out their model and start building and monetization.

Right right Okay.

So much I appreciate it.

Thank you.

The next question comes from Brett.

Think of America. Please go ahead.

Hi, Thanks for taking the question just a follow up on the guide I mean, just any way you can frame it.

The visibility into the into the quarter that you have at this point, whether you know visibility into advertising revenues like.

Like should we look at that as you're taking a very.

Conservative approach in building in a worsening of macro or is it conditions remain the same and anything maybe on just how the progression of months from now through the quarter and into July how trends have been would go well progressing would be helpful.

Okay.

I think I said I Didnt know prior you know at this point at the start of the quarter, we have less visibility than we typically do from a historical perspective into Q3.

And that is a result of us being that you know advertisers were using more discretion in caution towards the back end of Q2 in the commitments that we see however, I would note that from an overall direct sales revenue perspective. The majority of our revenue does come from claims that spend a million and above in historically.

We have had a very strong retention rate with those clients. So while visibility is lower we continue to be innovative and consultative as it relates to all of our strategic partners.

Got it thanks for the color there and just as a follow up you know I think you also alluded to potentially looking at the cost structure.

And trying to I'll call operational expenses, where he could any way you could frame the magnitude of it.

These cost savings that you can potentially be looking to go after over time just to see if you have to protect the EBITDA line, if things do get worse.

So in a historical perspective, we noted multiple cost actions in Q1, and Q2 and so what you can see and looking at Q2 mm is in part the complex integration. So as a result, the cost of revenue and gross margin there was significant improvement and looking at Q1 to Q2.

<unk>, which is an indicator of the cost actions that we need to better align our brand portfolio with the audience demand.

In the guide as well we are anticipating sequential improvement in our overall operating expense structure from Q2 to Q3, which is a result of cost actions that were also made in the first half and then shown a had mentioned incremental cost savings as well as we focus on critical hiring as well as evaluating our real estate.

Right.

It should.

As a result in incremental savings as we look out in Q4.

Understood. Thanks, so much for the color.

Yeah.

Right.

Our next question comes from Jason <unk> of Craig Hallum. Please go ahead.

Thank you.

On the time spent metrics you provided wondering if you can bifurcate what that looks like between third party and <unk> and then with that growing presence that you've been working on with Tic Toc curious if there's a point when you think you can start to outgrow those declines that you're seeing on the third party platforms and.

Start to see total growth and an audience reach an end and I know that you don't have.

Visibility into those metrics, but Korea or I guess the reported metrics that you guys are talking about but just curious if you can start to see the audience on tick tock kind of outpace what's happening elsewhere.

So I can start and then I can pass it to Jennifer to provide incremental color on.

The trends that we're seeing for kicked off so to answer your first question in terms of the mix of revenue or sorry mix of traffic for the three months ended June 30th 2022, 46% of our traffic came from the owned and operated properties and 54% came from the distributed network.

The components that came from the owned and operated properties I will say from a total advertising perspective. The majority of advertising revenue is running across our owned and operated properties not on the distributed network and so that's one point.

Point to think about in terms of Q3 as it relates to the distributed network. We did see incremental sequential decline from Q1, Q2, sorry, Q1 to Q2 on Facebook.

And that is also because we report Facebook based on their CNS, but they cannot they do not include the short form video content in that time spent metric.

We did however, see very positive trends in Youtube on the distributed network with those increasing materially from a year over year perspective, partially offsetting the declines that we saw on Facebook.

Yeah, and what I would expect to happen is that as the industry matures things that are not being measured by third parties now will will eventually be the measured and so that's something we've seen before where early on Youtube and Facebook video didn't have whether its comscore Nielsen.

In our other third party measurement and then over time advertisers and partners really demand some of those.

Third party.

We're meant to validate the scale of the business that they are building on these platforms.

So we expect we expect that we'll start to see some of that turned on it's just hard to predict exactly when that third party measurement will come and then the monetization as I mentioned earlier.

Something that initially is not fully built into the platform and that's something that comes with time as well about six years ago, when Facebook launched video.

They had a lot of video views, we built tasty during that period were tasty grew to tremendous scale, but again without third party measurement and without any Rev share.

And then over time, we saw that Facebook video AD. It in monetization in Rev share another other ways to both measure and monetize the content.

And in the meantime, before those that the measurement and monetization comes from the platform, we build things like.

Like up shops, and other other branded content solutions or our content solutions product placement extended licensing other ways to monetize that don't require the platforms to provide the rev share or measurement.

So I think youre going to see over the next couple of years. These two these new formats, new platforms, new ways of behaviors for consuming media to grow and then for that whole ecosystem of measurement and monetization to grow around around these new behaviors and so that's what we're preparing for now and building towards.

Yeah.

And then I also wanted to ask Joanna you you talked about this content creator program that helps to reach their targeted audience wondering where kind of where you're at in that type of a solution where adoption sits and what else needs to happen there.

So we're getting a really tremendous response from creators, which is important because they're really key to the program. Our creator program now has over 100 creators. If you are a independent creator out there on whether it's ticked off for Instagram or Youtube it can be pretty lonely.

Trying to get people, who are likely to subscribe to your content and having to constantly make more and more content and the kind of burn out and struggled.

It is really real for these creators in a lot of them don't last very long, making making content on these platforms when they partner up with Buzzfeed and and our other iconic brands that we that we have to offer they get immediate credibility from our brands they get access to our sales team that can bring in brand.

Deals and partnerships that they wouldn't have been able to get on their own.

In some cases, they get access to studios and the ability to be in shows and being content that we produce some of them send us in footage that we that we package into into.

Show us the content that we distribute across our network and so it gives them a lot of additional ability and helps them become more famous reached more people generate more more revenue.

And then of course for us it's great because it is a creator first way for us to expand across all of these platforms.

And lends itself well to vertical video and lends itself well to both our advertising and content revenue line. So.

We're excited building in this direction and it feels like something that really is something the industry needs. There's a real gap in the industry where.

You know creators creators on the platform by themselves are missing a lot and the platforms or are not really set up to provide that to them and we can give them the kind of strength of our media network and our brands and tasty and Huffpost Buzzfeed and complex.

And really bring the best of our media network with greater program.

Maybe on that last part.

Can you do you get the same kind of feedback from like an Instagram or Youtube or a tick tock on on how receptive they are to programs like that content creator studio that you've created.

Yeah, I mean all of them.

So I mentioned that from the creator perspective, which is definitely really important.

Two perspective that really matter are the advertiser perspective, and we're seeing great great interest from advertisers, who want to do more in the crater in vertical video space.

As you pointed out the platform view of our activities is also really important and they all the major platforms are looking for ways to get more high quality content, and particularly brand safe content, because theyre, having a lot of challenges with user generated content.

Potentially.

Is.

Not something that an advertiser wants to be associated with and honestly. It's not just that people are are posting bad stuff or theres bad bad people in some ways. The platform dynamics create an incentive for people to really push the envelope because if you're out there by yourself without the backing of a buzzfeed and helping you get your your content out there you really.

Feel like you need to do extreme stuff or really controversial Stafford spin up a bunch of drama in order to get attention and views and followers and the platforms don't really like that even though they may get some engagement because it turns off advertisers that makes advertising thing I don't want to be on this platform that has this kind of content. So for the platforms, we really provide a service.

Helping train creators and we've even been paid by platforms to help train creators on how to make better content.

On multiple occasions.

And.

How to make sure that the content is brand safe and has some brand integrity and embedding that and then helping increase the volume of content and so a lot of work we're doing with these platforms with our greater program is something that they really really welcome because it is helping them.

Scale up their content with high quality brand safety and in categories that they really value it.

Clearly with with diverse content created by diverse creators for diverse audiences is another area, where a lot of the platforms need help in and so that's another area, where we can add a lot of value that the platform is really appreciate it.

So I guess just to sum up the creators are very excited about this the advertisers as well as the platforms and so we have to keep all three of those parties Barry.

You know happy in order for the program to work and so far it's going well.

Alright, perfect. Thank you Jonathan Thanks Felicia.

This concludes our question and answer session I would like to turn the conference back over to Jonah Peretti for any closing remarks.

Hum.

Thank you all for joining the call today, we look forward to seeing you at upcoming investor conferences and events over the next several weeks.

Thank you.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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