Q3 2022 BuzzFeed Inc Earnings Call
[music].
Good afternoon, and welcome to the Buzzfeed, Inc. Third quarter 2022 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I'd now like to turn the conference.
Over to a meter Tom Korea, Senior Vice President of Investor Relations. Please go ahead.
Hi, everyone welcome to both feet, Inc. Third quarter 2022 earnings conference call joining us today are founder and CEO , Jonah Peretti, President Marcello Martin and CFO Felicia Delek 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.
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 budgets 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.
Additionally, today, we published our inaugural Investor letter, which includes the details of our financial results.
<unk> sales and operating highlights and a comprehensive look at our brands.
Please refer to our Investor relations website to find our Investor letter along with today's press release, and Investor presentation, and now I'll turn the call over to Joanna.
Hi, everyone and thank you for joining us I'm pleased to share that we delivered Q3 results ahead of our August outlook on both revenue and adjusted EBITDA in spite of the rapidly shifting platform landscape and ongoing macroeconomic uncertainty our.
Our achievement in the quarter highlights the company's track record as a creator led publisher with the agility to adapt successfully to changes in audience behavior. Specifically, we grew revenues by 15% year over year to $104 million revenue performance was led by our creator are led by.
Our content business as we continue to drive early monetization and new content formats, and a wider range of premium advertising opportunities through the December 2021 acquisition of complex networks. This drove a better than expected adjusted EBITDA loss of $2 million.
Our creative teams continue to ramp up short form vertical video content publishing over 5000 videos across Instagram Youtube shorts, and tic toc in the quarter more than double that.
Yes.
The year ago quarter.
Views of our short form video content across platforms grew more than 60% versus the second quarter with robust double digit growth on each platform.
And according to Comscore Gen Z and millennial audiences continue to spend vastly more time consuming our content than that of any other pure play digital media company.
We achieved these milestones in partnership with our talented network of creators.
Who leaned into our massive audience reach to publish some of the quarter's top performing vertical video content across multiple platforms with.
With focused investments across our brand portfolio. We are further cementing our leadership position as a discovery engine for the next generation of Internet creators.
In turn we are able to deliver strong returns for our clients and partners in the quarter, helping them to navigate the ongoing headwinds in the digital advertising market.
Through our advertising clients have limited budget to deploy in the current environment. We continue to win on massive audience reach across our combined portfolio the cultural relevance of our IP and the trust and safety of our brands.
As competition among the largest streaming platforms intensified many of them returned to us in Q3 to promote their major franchises and tent pole releases seeking to access our massive audience reach across our brand portfolio and distribution network.
With authoritative original programming on everything from celebrity culture to food to fashion, our portfolio of premium IP show, then content attracted new and returning clients looking to enter the cultural zeitgeist. This roster included shake Shack, Walmart and timberland to name a few.
Brand safety is a top concern for advertisers and in the current environment advertisers are increasingly faced with major platforms trying and failing to moderate user generated content.
Across our portfolio, we offer advertisers the opportunity to invest directly in high quality content from trusted brands at Internet scale.
We care deeply about helping our customers deliver results and we are committed to protect protecting and empowering their brands by associate them with relevant content for the audiences they want to reach.
Our strong third quarter performance in verticals, such as financial services, where many of the largest financial insurance institutions are longstanding client clearly demonstrate that we are delivering and delivering on our brand safety promise.
Looking ahead, we are on pace to deliver our strongest financial performance of the year in the fourth quarter in line with typical advertising and commerce seasonality.
We're also excited to welcome tens of thousands of fans to the long Beach Convention Center. This weekend for the seventh installment of complex Con.
This year's event will Mark our largest live shopping experience yet complex con featuring hundreds of brands spanning more than a dozen categories, including fashion retail tax CPG beauty home goods and more.
As we continue to navigate the dual dynamics of the rapid rise of short form vertical video and an uncertain macroeconomic environment.
We are also focused on preserving cash and leveraging our strong audience signal to direct resources towards the opportunities with the highest potential for monetization.
In just a moment I will pass the call to our President Marcella Martin who will share more on this marcella joined us in August , bringing a wealth of experience spanning strategic and financial leadership roles at leading media and Internet companies. She.
She has already proven to be a tremendous strategic partner to me and the broader leadership team, helping us to shape, our long term strategy I mean, the rapidly evolving digital media landscape.
Before I wrap up I wanted Inc. Our talented employees and network of creators for continuously striving to spread truth joy and create creativity on the Internet, we are committed to making the internet and the world a better place and we appreciate the support of our shareholders as we execute on this vision.
I'll now pass the call to Marcello.
Yeah.
Thank you Jonathan it's great to be here and thank you all for joining us today.
This quarter, we have launched an investor letter, which you can find in our investor relation website.
Letter includes our third quarter results same center operating highlights and a comprehensive look at our brands.
We thought it would be a helpful place to the next dose of you that may be new to the box here just to tell you we welcome your feedback.
I would like to start by reiterating something that John mentioned earlier.
Nancy a millennial audiences spent vastly more time consuming our content and that of any other pure play digital media company.
This continues to be to quarter after quarter and by a significant margin with young audience is spending more than twice the amount of time with our content and that of our closest competitor.
Each of Buzzfeed inks iconic brands do you think of tailoring leader among young audiences and our third quarter revenue performance demonstrated the attractiveness of these brand portfolio for advertisers.
The team has done an incredible job blending data unclear TBD to create high quality content in a brand safe environment for advertisers.
What it has inspired me to Julien Buzzfeed.
I am impressed by how the teams put audiences creators and advertisers at the forefront of what they do always looking for ways to be a pardon my shapes that deliver a win for all stakeholders.
This is especially true in today's market and as you heard our value proposition is resonating strongly with advertisers as they continue to navigate the dynamics of a massive platform shift umbrella there macroeconomic uncertainty.
Our clients and partners consistently return to us to deliver on massive reach with younger audiences brand safety and culturally relevant intellectual property.
Since joining in August one of my immediate priorities has been to harness this differentiated value proposition and in collaboration with colleagues develop and long range strategic plan that responds to the historic industry shift that is currently underway.
I have had the opportunity to engage with some of our analysts and investors already and the feedback is clear.
There is excitement around a few trials of <unk>, Inc.
Many have witnessed the company successfully navigate multiple industry transitions in its 15 year history from the launch of mobile phones to the rise of social media to the introduction of new video formats and more.
We also understand that you want to hear more about our long term vision and strategy as we navigate these karan transition.
This work is already well underway and as part of this process. Our teams are focused on setting optimal investment levels in a resource constrained environment.
Identifying a capital structure and resource allocation that enables us to the next capital and talent to the highest potential opportunities while preserving cash.
A path forward consistent free cash flow generation.
Continuing to evaluate strategic M&A opportunities.
I believe that the future is bright for Buffy Inc. We see multiple opportunities for long term growth, including continuing to adapt our old Ethan Allen and creator led IP to new formats and platforms do we.
Extend our leadership position among young audiences.
Scaling our emerging businesses by leveraging our rich first party data and cross platform insights to help our partners address challenges in areas like E Commerce and long form content development.
Building on our audience engagement in regions like Asia, Latin America, Canada, Australia, and the U K to grow our international presence.
Extending our diversified cross platform model to additional sub scale digital media brands.
It is important to me that we maintain an open dialogue with investment community. Our quarterly earnings calls are a good forum to inform analyst and investors about the most important topics in the business and I look forward to identifying additional opportunities to engage starting with our investor day in 2020 see they do follow.
Thank you Felicia, we now take you through our results and outlook.
Thank you Marcella.
We delivered third quarter results ahead of our August outlook for both revenue and adjusted EBITDA revenues of $103 $7 million exceeded the midpoint of our guidance range by 9 million driven by higher than anticipated revenue in each of our advertising content and commerce businesses adjust.
Adjusted EBITDA loss of $2 4 million with $5 million better than the midpoint of our guidance range driven by our revenue outperformance.
The year over year basis revenues grew 15% to $103 7 million as our category, leading brands continues to attract new and existing claims even in a constrained digital advertising environment with performance by business as follows.
Advertising revenues were flat year over year at $50 4 million compared to 52 in the third quarter of 2021 as growth on our owned and operated properties offset declines on third party platform the.
The 2022 results include the acquisition of complex networks, which closed in December 2021, as expected the rate of advertising revenue growth decelerated versus Q2, driven by ongoing price compression and uncertainty around consumer demand.
Content revenues grew 45% year over year to $38 4 million decelerating versus Q2 as expected as macro constraints on AD budgets drove lower demand for branded content in certain verticals relative to prior quarters.
As a reminder, the 2022 results include the acquisition of complex networks.
Commerce revenues returned to growth in the third quarter benefiting from the timing of Amazon Prime day in Q3 of this year versus Q2 in the prior year revenues grew 12% year over year to $14 9 million with our editorial shopping content generating record GMB during July Prime day.
This resulted in adjusted EBITDA loss of $2 4 million in the quarter.
We also incurred charges that did not impact adjusted EBITDA, including $3 6 million in stock based compensation in line with our August outlook, $9 2 million of depreciation and amortization with the year over year increase attributable to the recognition of intangible assets associated with our.
I Should've complex networks, and $5 2 million of interest expense largely related to our convertible note financing.
We ended the quarter with cash and cash equivalents of approximately 59 million.
As a complement to our advertising revenue reporting we also measure audience engagement across our owned and operated property and third party platforms. We are quickly ramping our vertical video presence across platforms with more videos published in Q3 than ever before and we continue to gain audience momentum in the quarter.
With vertical video views across platforms growing 60% versus the second quarter. This gives us further confidence that we are well positioned to monetize these newer formats over time.
You asked time spent as reported by Comscore, which does not include tick tock or real declined 32% year over year to 151 million hours in the third quarter driven by declining Facebook traffic as short term vertical video format continues to gain audience share. This opex.
Growth in time spent on our owned and operated properties.
Although industry standard reporting on audience time expense does not yet reflect newer platforms and formats. We are pleased with the audience momentum we have generated so far this year and look forward to sharing more on our progress in this important area over the coming quarters.
Turning to our fourth quarter outlook as always we aim to provide an outlook that reflects the most current trends we are seeing across our business and in the macro environment. It is clear that advertisers are continuing to exercise caution around spending as a function of strong macroeconomic headwinds.
We're looking to transact on shorter sales cycle in order to meantime maintain flexibility in their budgets.
This has translated into lower visibility into future revenues and we have had historically at.
At the same time, we have seen signs of resilience in consumer demand, while we cannot predict the future. We are preparing for further deterioration in the macro environment.
Before I move on to discuss our expectations for the fourth quarter I want to remind everyone that December will mark the one year anniversary of the acquisition of complex networks.
As a result year over year comparison will reflect approximately one month of complex networks results in Q4 2021.
Starting with time spent overall.
Overall time spent in the third quarter was split evenly between our owned and operated properties and third party platform. However, it is important to note that the significant majority of our advertising revenues are driven by time spent on our owned and operated properties and these revenues have grown year over year in each of the first three quarters.
As a result, although we expect China to again be impacted by the ongoing traffic declines on Facebook, we are well positioned to mitigate much of this revenue impact due to our scale on owned and operated properties.
And we are focused on building further momentum with short form vertical video across platforms. As we continue to lay the groundwork for future monetization.
Turning to revenues, we do expect to see a seasonal lift in total revenue in Q4, consistent with the advertising and holiday shopping seasonality, we have historically seen in our business. However, amid the current macro economic environment and based on the category trends, we have seen in Q3 and into Q4, we expect.
The lift in Q4 revenue versus Q3 to be somewhat muted relative to prior years.
As discussed our revenue visibility continues to be limited relative to historical patterns as clients are increasingly exercising caution in committing to Q4 spending our sales team continues to have active discussions across our client base with many of our clients seeking shorter cycle advertising products.
As they flex budgets against the backdrop of uncertainty in consumer demand.
In terms of year over year trends in Q4, we expect content revenues to be most impacted by this trend relative to advertising revenue with less client spend is being allocated to the production of original branded content assets that require a longer lead time to deliver relative to traditional display and pre roll advertising.
On the other hand, we expect year over year trends in commerce revenue to show considerable improvement in Q4, driven by multiple factors, including the addition of experiential revenues from complex Con, which will take place. This weekend in long Beach, California. The addition of a second Amazon Prime day in October of this year.
And easing comps.
In terms of adjusted EBITDA in light of the revenue trends discussed above we have continued to identify additional opportunities to mitigate impact to the bottom line, we successfully slowed hiring in the third quarter, which contributed to the sequential declines in opex across each of our sales and marketing research and development and G&A.
In the third quarter. We also successfully executed a sublease of our New York headquarters, which will help us drive a meaningful reduction in G&A expenses quarter over quarter. In Q4, we are focused on further optimizing our cost base through these and other initiatives in order to better align with the current demand environment and preserve cash over the coming.
In the quarter.
With that I will turn to our financial outlook for Q4 2022, we expect overall revenues in the range of $129 million to $134 million, we expect adjusted EBITDA in the range of 12 to 17 million.
And we expect stock based compensation expenses in the range of three five to $4 5 million.
I am proud of the results our team delivered in the third quarter further demonstrating our agility in adapting to the rapidly evolving digital media landscape. Looking ahead, we are focused on growing audience engagement around short form video further optimizing our cost base and preserving cash over the coming quarters. Thank you and I'll now turn the call over to the opera.
Later, 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 you were 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 our roster.
Our first question is from Jason <unk> with Craig Hallum. Please go ahead.
Hey, guys. Good afternoon, I'm wondering if you can just maybe talk a little bit further about how you are managing growth investments versus.
Little bit more cost rationalization and trying to preserve the bottom line.
So I can say from a cost optimization perspective, we are continuously looking at fixed versus variable expenses and as you recall a component of our cost of revenue is fixed which is in part what drove the sequential decline in adjusted EBITDA in light of the <unk>.
Celebration in revenue from Q2 to Q3, and we have continued to take cost actions throughout this year to help mitigate them.
The macro economic headwinds such as the unification of the sales or general and administrative expenses as well as attack at the start of the year and we had also announced the buzzfeed needs changes in Q2 as well.
Yes.
The market really has shifted to short form vertical video and creators we've made investments in that in that area and we're seeing the benefit of that and we also as Felicia mentioned.
Have always look for cost actions, we can take in other areas that maybe arent growing the way the way they were before some of these shifts in the market.
Yeah.
Oh, Yeah, I know if I can.
I mean.
Sorry, just if I can add you know if you look at our Investor letter you will see some old farm them engagement trends and you will see that for example for abuse of free is shortened tick tock, they have grown more than 60% versus Q2 2022, So why and then time to spare.
It's not reflecting the entirety of what is being measured in terms of engagement. We are quite pleased that we said results. We have obtained so far and the investments that we need in short form video.
So that's what I wanted to ask for the follow up so you've got the time spent down 28% I think but obviously short form is an offsetting factor I believe can you just can you help parse out the short form dynamic and how that impacts that time spent.
Yes, I mean, one of the biggest declines in time span have come from from legacy Facebook video for example, which is the longer video.
The Facebook platform with serving and distributing to their audience than that longer video.
Has both.
Mid roll advertising for monetization and as because it's longer will will take a fair amount of time.
Consumer time, when their view to view those videos.
Facebook and other platforms have started to deemphasize that kind of video and instead focus on vertical video.
And that's.
A long term opportunity for us and we're seeing that growth.
As Marcelo mentioned earlier.
In our in our business, but it does.
Have a lag both on monetization and for the measurement to start to come in to give us a clear a clear window into how that short form consumption is replacing.
Some of the legacy video that was the front from those platforms. So comscore Nielsen other other measurement services.
Have to figure out how to strike deals with by dance or expand their deals with with meta.
Youtube in order to start to measure time on some of those platforms and there's a bit of a lag waiting for some of those measurement deals to catch up.
I'd also add that our owned and operated and Youtube continues to be up year over year. So what youre seeing from an overall, 10% decline is majority Facebook and the other important is when youre thinking about the distributed networks. That's only approximately 20% of our total advertising revenues and so in looking at total owned and operated that is the majority.
<unk> and that has shown.
Strong improvement both year over year and quarter over quarter.
Alright, Thank you guys I appreciate it.
The next question is from John Blackledge with Cowen. Please go ahead.
Hi, This is James Kaufman on for John Thanks for taking the question can you talk about the advertising environment into the fourth quarter now into November where you're seeing the resilience and consumer demand that you highlighted.
And which industry verticals are maybe performing better.
Worse from an AD spending perspective, and then I have a follow up.
Sure. Thanks, James So the the.
First the part that is a bit still uncertain is.
How will consumers behave this holiday season, so we don't yet know.
If people will buy less Christmas present for their kids or or whether there'll be that kind of impact in the holidays, though we'll have to wait and see.
What we're seeing in the market is in our conversations with advertisers were seeing strength in financial services and some of our emerging verticals like toys and travel, which is which is a positive signal.
But we're seeing softness in CPG and retail.
And that's not unexpected.
Unexpected that you would see in the tech sector for example.
A little less bullishness on and a little less spending.
Because of the macro shifts that they're that they are facing.
Overall, we feel that the advertisers that we're talking to and our sales team is talking to feel very.
Encouraged by the way that the brand safety that we offer the iconic brands we offer multiple product lines, we have the ability to reach.
Millennial and Gen Z generation that unprecedented scale are all really real differentiators and so all of the partners, we're talking to even ones an error in those impacted areas. I. Just mentioned are very engaged in trying to figure out once they have more clarity on the market how they can.
Engage with us and partner with us.
Okay.
Great. Thanks, and then a quick follow up advertising is currently around half of Buzzfeed revenue. If you look out longer term how should we think about the relative percent of the business from advertising content and commerce is your goal to eventually get to around a third a third and a third from each source.
And how are you thinking about this generally as you scale the business over time. Thanks.
Yes. The approach we've taken is to build a diversified portfolio of revenue lines that gives us the flexibility and resiliency as the market changes.
We can do a little bit trying to predict the market, but more we want to be able to react and adapt to the market as things change and so for example, commerce was.
A huge driver for us during the pandemic lockdown because physical retail was club was closed and retail was a real strong.
<unk>.
And then at other at other periods, you see branded content, our content lines being being what advertisers are partners are looking for so we're not trying to set a kind of idealized ratio. We're trying to have really strong business lines in multiple areas. So that we can react to whatever the market throws our way.
Okay.
Yeah, and we've got it thanks, guys James with Schein, sorry, James we are planning to speak more about our goals in our Investor day. Once we announce it that it will happen sometime in 2023.
Great. Thanks, I appreciate the color and best of luck in the fourth quarter. Thank you.
Yeah.
The next question is from Brent <unk> with Bank of America. Please go ahead.
Hi, guys. Thanks for taking the question.
I guess just in terms of obviously, the cautiousness in <unk> and advertising I mean thats fairly.
Not surprising I am just curious join our team.
Anything you can talk about 'twenty three in terms of conversations with advertisers I mean is it.
Sort of should.
Should we take.
The guidance that you provided is <unk> sort of the run rate through 'twenty, three or is there potential that things could get worse and any sort of color on that would be helpful.
<unk>.
Yes, I would say.
The part of the reason that we've been providing quarterly guidance is that the market is very unpredictable right now and we've seen a lot as you know as.
As well as anyone we've seen a lot of shifts in the macroeconomic environment.
As well as consumer behavior shifts driven by technology platform shifts to the pandemic rather other factors.
And so we.
We really.
Can share sort of anecdotally.
Talking to our biggest advertisers in our biggest partners, they're very engaged and they're looking towards the future, but they are feeling that there is a lot of uncertainty in the market and so I would say that the <unk>.
Message is the message for next year.
That I hear from a lot of our partners is we want to see what's going on with the economy. We wanted to get a sense of how all this that's going to shake out.
<unk> continue to roll forward like this or is there.
Shift.
The market how did the holiday shopping season go and do.
Consumers come out and enforce and spend a lot over this holiday. So there's a lot of those kinds of questions that we'd rather wait for a few more cards to fall to be able to really understand what's going on in the macro economy before before making any hard predictions about about Q.
One, but it feels it definitely feels like our partners are very engaged and they are talking about ideas and partnerships and things that they can do as soon as they have that kind of clarity about about where the market is headed.
As it relates to our Q4 guide and just general comment we have noticed from a historical perspective that our larger advertisers are still strong showing our strong retention rates. So we are still looking at our larger advertisers.
Renewing with us at around 90%. However, their overall spend has been most impacted with CPG retail and tech telco being the major sales verticals.
That have shown declines from a year over year perspective, and so while we're seeing Q4.
Be muted from a seasonal lift versus what we've seen historically.
That is one factor that is important to us and our outlook for 2023.
Got it.
That's very helpful color and just maybe as a follow up.
I think you just digital advertising, there's just there's a lot of changes both cyclical now and obviously, you're just at an industry level.
You can name all of us at several platforms I'm just curious.
From your perspective, how Buzzfeed is trying to position themselves and I know one of them he talked about his brand safety.
How big of an opportunity could that potentially be in potentially this being an opportunity for you guys to pick up incremental share.
On that would be helpful as well thanks.
I think that one of the big realizations recently from the platform just how much work it takes to moderate content.
And how much money it takes billions of dollars spent.
Meta on this.
Challenge in.
If your model depends on getting free content from users.
Your advertisers want high quality safe content you have this natural contradiction in our business model and that has required these the big platforms to spend more and more money and time and effort and apply more and more technology to filtering out content looking for those gems of good content that are acceptable to their advertising partners.
And while they struggle with all the polarizing content hyper political content harassing content misinformation all of those kinds of issues.
I think that as that continues to unfold it makes our model look.
A lot more.
Appealing, which is standing behind the content, we make partnering with trusted creators and having that affiliation that they work with us. They know that they have to make content that is that is brand safe and it doesn't have any of the problems that I was just mentioning.
And if you're an advertiser or a partner and you can partner directly with the content you don't have to worry about this larger challenge and we are really one of the few players in the space that is making.
Trusted brand safe content at Internet scale with brands that people know and love across all the platforms, where consumers are consuming content and thats very appealing for our advertisers who are struggling with some of the challenges that.
That have been well documented with the big platforms.
So I think that there is there's a big opportunity there too to really extend our lead as trusted brand safe content operating internet scale and Theres a lot of upside in that model and I think it's something that also has the benefit of being good for society and good for democracy.
And good for the public as well as for the Advertiser.
And it all depends on any particular platform.
We are platform agnostic I think that that is that they they are good going for for Boston and congratulation.
<unk> from the baby.
Thank you. Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Jonah Peretti for any closing remarks.
Thank you all for joining US today, we look forward to speaking with many of you over the coming weeks, thanks for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yes.
[music].
Yes.
[music].
[music].
[music].
Good afternoon, and welcome to the Buzzfeed, Inc. Third quarter 2022 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference.
Over to a meter Tom Corey Senior Vice President of Investor Relations. Please go ahead.
Hi, everyone welcome to both feet, Inc. Third quarter 2022 earnings conference call joining us today are founder and CEO , Jonah Peretti, President Marcello Martin and CFO Felicia della 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.
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 budgets 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.
Additionally, today, we published our inaugural Investor letter, which includes the details of our financial results selected sales and operating highlights and a comprehensive look at our brands.
Please refer to our Investor relations website to find our Investor letter along with today's press release, and Investor presentation, and now I'll turn the call over to Joanna.
Hi, everyone and thank you for joining us I'm pleased to share that we delivered Q3 results ahead of our August outlook on both revenue and adjusted EBITDA in spite of the rapidly shifting platform landscape and ongoing macroeconomic uncertainty.
Our achievement in the quarter highlights the company's track record as a creator led publisher with the agility to adapt successfully to changes in audience behavior. Specifically, we grew revenues by 15% year over year to $104 million revenue performance was led by our creator are led by.
Our content business as we continue to drive early monetization and new content formats, and a wider range of premium advertising opportunities through the December 2021.
The acquisition of complex networks. This drove a better than expected adjusted EBITDA loss of $2 million.
Our creative teams continue to ramp up short form vertical video content publishing over 5000 videos across Instagram Youtube shorts, and tic toc in the quarter more than double that of it.
Sure.
The year ago quarter.
The use of our short form video content across platforms grew more than 60% versus the second quarter with robust double digit growth on each platform.
And according to Comscore Gen Z and millennial audiences continue to spend vastly more time consuming our content than that of any other pure play digital media company.
We achieved these milestones in partnership with our talented network of creators.
Who leaned into our massive audience reach to publish some of the quarter's top performing vertical video content across multiple platforms with.
With focused investments across our brand portfolio. We are further cementing our leadership position as a discovery engine for the next generation of Internet creators.
In turn we are able to deliver strong returns for our clients and partners in the quarter, helping them to navigate the ongoing headwinds in the digital advertising market.
Through our advertising clients have limited budget to deploy in the current environment. We continue to win on massive audience reach across our combined portfolio the cultural relevance of our IP and the trust and safety of our brands.
As competition among the largest streaming platforms intensified many of them returned to us in Q3 to promote their major franchises and tent pole releases seeking to access our massive audience reach across our brand portfolio and distribution network.
With authoritative original programming on everything from celebrity culture to food to fashion, our portfolio of premium IP show, then content attracted new and returning clients looking to enter the cultural zeitgeist. This roster included shake Shack, Walmart and timberland to name a few.
Brand safety is a top concern for advertisers and in the current environment advertisers are increasingly faced with major platforms trying and failing to moderate user generated content.
Across our portfolio, we offer advertisers the opportunity to invest directly in high quality content from trusted brands at Internet scale.
We care deeply about helping our customers deliver results and we are committed to protect protecting and empowering their brands by associate them with relevant content for the audiences they want to reach.
Our strong third quarter performance in verticals, such as financial services, where many of the largest financial insurance institutions are long standing clients clearly demonstrate that we are delivering and delivering on our brand safety promise.
Looking ahead, we are on pace to deliver our strongest financial performance of the year in the fourth quarter in line with typical advertising and commerce seasonality.
We're also excited to welcome tens of thousands of fans to the long Beach Convention Center. This weekend for the seventh installment of complex Con.
This year's event will Mark our largest live shopping experience yet complex con featured hundreds of brands spanning more than a dozen categories, including fashion retail tax CPG beauty home goods and more.
As we continue to navigate the dual dynamics of the rapid rise of short form vertical video and an uncertain macroeconomic environment.
We are also focused on preserving cash and leveraging our strong audience signal to direct resources towards the opportunities with the highest potential for monetization.
And just a moment I will pass the call to our President Marcella Martin who will share more on this marcella joined us in August , bringing a wealth of experience spanning strategic and financial leadership roles at leading media and Internet companies. She.
She has already proven to be a tremendous strategic partner to me and the broader leadership team, helping us to shape, our long term strategy I mean, the rapidly evolving digital media landscape.
Before I wrap up I want to thank our talented employees and network of creators for continuously striving to spread joy and create creativity on the Internet, we are committed to making the internet and the world a better place and we appreciate the support of our shareholders as we execute on this vision.
I'll now pass the call to Marcello.
Thank you Jonathan it's great to be here and thank you all for joining us today.
This quarter, we have launched on the Investor letter, we can find in our investor relation website.
Letter includes our third quarter results sales and operating highlights and a comprehensive look at our brands.
We thought it would be a helpful place to the next dose of you that may be new to the biopsy. This is Kelly.
Welcome your feedback.
I would like to start by reiterating something that John mentioned earlier.
Nancy on millennial audiences spent vastly more time consuming our content than that of any other pure play digital media company.
This continues to be to quarter after quarter and by a significant margin with young audiences are spending more than twice the amount of time with our content than that of our closest competitor.
Each of busted inks iconic brands is the category leader among young audiences on our third quarter revenue performance demonstrated the attractiveness of these brand portfolio for advertisers.
The team has done an incredible job blending data and creativity to create high quality content in a brand safe environment for advertisers.
What it has inspired me to Julien Buzzfeed.
I am impressed by how the teams put audiences creators and advertisers at the forefront of what they do always looking for ways to pardon shapes that deliver wings for all stakeholders.
This is especially true in today's market and as you heard our value proposition is resonating strongly with advertisers as they continue to navigate the dual dynamics of a massive platform shift umbrella there macroeconomic uncertainty.
Our clients on Panamax consistently return to us to deliver on massive reach with young audiences brand safety and culturally relevant intellectual property.
Since joining in August one of my immediate priorities has been to harness this differentiated value proposition and in collaboration with colleagues developed a long range strategic plan that responds to the historic industry shift that is currently underway.
I have had the opportunity to engage with some of our analysts and investors already and the feedback is clear.
There is excitement around the future of <unk>, Inc.
Many have witnessed the company successfully navigate multiple industry transitions in its 15 year history from the launch of mobile phones to the rise of social media to the introduction of new video formats and more.
We also understand that you want to hear more about our long term vision and strategy as we navigate these karan transition.
This work is already well underway and as part of this process.
Our teams are focused on setting optimal investment levels in a resource constrained environment.
Densify, the capital structure and resource allocation that enables us to direct capital and talent to the highest potential opportunities while preserving cash.
Charting a path forward consistent free cash flow generation.
I'm continuing to evaluate strategic M&A opportunities.
I believe that the future is bright for Buffy Inc. We see multiple opportunities for long term growth, including continuing to adapt our eternal on creator led IP to new formats and platforms to extend our leadership position among young audiences.
Scaling our emerging businesses by leveraging our rich first party data and cross platform insights to help our partners address challenges in areas like E Commerce and long form content development.
Building on our audience engagement in regions like Asia, Latin America, Canada, Australia, and the U K to grow our international presence.
Standing our diversified cross platform model to additional sub scale digital media brands.
It is important to me that we maintain an open dialogue with investment community.
Our quarterly earnings calls are a good forum to inform analysts and investors about the most important topics in the business and I look forward to identify additional opportunities to engage starting with our investor day in 2020 see day to follow.
Felicia, we now take you through our results and outlook.
Thank you Marcella we'd.
We delivered third quarter results ahead of our August outlook for both revenue and adjusted EBITDA revenues of $103 $7 million exceeded the midpoint of our guidance range by $9 million driven by higher than anticipated revenue in each of our advertising content and commerce businesses adjust.
Adjusted EBITDA loss of $2 4 million with $5 million better than the midpoint of our guidance range driven by our revenue outperformance.
On a year over year basis revenues grew 15% to $103 7 million as our category, leading brands continued to attract new and existing clients even in a constrained digital advertising environment with performance by business as follows.
Advertising revenues were flat year over year at $50 4 million compared to 52 in the third quarter of 2021 as growth on our owned and operated properties offset declines on third party platforms.
For 2022 results include the acquisition of complex networks, which closed in December 2021, as expected the rate of advertising revenue growth decelerated versus Q2, driven by ongoing price compression and uncertainty around consumer demand <unk>.
Content revenues grew 45% year over year to $38 4 million decelerating versus Q2 as expected as macro constraints on AD budgets drift lower demand for branded content in certain verticals relative to prior quarters.
As a reminder, the 2022 results include the acquisition of complex networks.
Commerce revenues returned to growth in the third quarter benefiting from the timing of Amazon Prime day in Q3 of this year versus Q2 in the prior year revenues grew 12% year over year to $14 9 million with our editorial shopping content generating record GMB during July Prime day.
This resulted in adjusted EBITDA loss of $2 4 million in the quarter.
We also incurred charges that did not impact adjusted EBITDA, including $3 6 million in stock based compensation in line with our August outlook, $9 2 million of depreciation and amortization with a year over year increase attributable to the recognition of intangible assets associated with our.
<unk> of complex networks, and $5 2 million of interest expense largely related to our convertible note financing.
We ended the quarter with cash and cash equivalents of approximately $59 million.
As a complement to our advertising revenue reporting we also measure audience engagement across our owned and operated properties and third party platforms. We are quickly ramping our vertical video presence across platforms with more videos published in Q3 than ever before and we continue to gain audience momentum in the quarter.
With vertical video views across platforms growing 60% versus the second quarter. This gives us further confidence that we are well positioned to monetize these newer formats over time.
U S time spent as reported by Comscore, which does not include <unk> declined 32% year over year to 151 million hours in the third quarter driven by declining Facebook traffic as short form vertical video format continues to gain audience share this offset.
Growth in time spent on our owned and operated properties.
Although industry standard reporting on audience time expense does not yet reflect newer platforms and formats. We are pleased with the audience momentum we have generated so far this year and look forward to sharing more on our progress in this important area over the coming quarters.
Turning to our fourth quarter outlook as always we aim to provide an outlook that reflects the most current trends, we're seeing across our business and in the macro environment. It is clear that advertisers are continuing to exercise caution around spending as a function of strong macroeconomic headwinds.
We're looking to transact on shorter sales cycle in order to maintain maintain flexibility in their budgets.
This has translated into lower visibility into future revenues than we have had historically at.
At the same time, we have seen signs of resilience in consumer demand, while we cannot predict the future. We are preparing for a further deterioration in the macro environment.
Before I move on to discuss our expectations for the fourth quarter I want to remind everyone that December will mark the one year anniversary of the acquisition of complex networks.
As a result year over year comparison will reflect approximately one month of complex networks results in Q4 2021.
Starting with tight expense overall.
Overall time spent in the third quarter was split evenly between our owned and operated properties and third party platforms. However, it is important to note that the significant majority of our advertising revenues are driven by time spent on our owned and operated properties and these revenues have grown year over year in each of the first three quarters as.
As a result, although we expect <unk> expense to again be impacted by the ongoing traffic declines on Facebook, we are well positioned to mitigate much of this revenue impact due to our scale on owned and operated properties.
And we are focused on building further momentum with short form vertical video cross platform as we continue to lay the groundwork for future monetization.
Turning to revenues, we do expect to see a seasonal lift in total revenue in Q4, consistent with the advertising and holiday shopping seasonality, we have historically seen in our business. However, amid the current macro economic environment and based on the category trends, we have seen in Q3 and into Q4, we expect.
The lift in Q4 revenue versus Q3 to be somewhat muted relative to prior years.
As discussed our revenue visibility continues to be limited relative to historical patterns as clients are increasingly exercising caution in committing to Q4 spending.
Our sales team continues to have active discussions across our client base with many of our clients speaking shorter cycle advertising products as they flex budgets against the backdrop of uncertainty in consumer demand in.
In terms of year over year trends in Q4, we expect content revenues to be most impacted by this trend relative to advertising revenue with less client spend is being allocated to the production of original branded content assets that require a longer lead time to deliver relative to traditional display and pre roll advertising.
On the other hand, we expect year over year trends in E. Commerce revenues to show considerable improvement in Q4, driven by multiple factors, including the addition of experiential revenues from complex Con, which will take place. This weekend in long Beach, California. The addition of a second Amazon Prime day in October of this year.
And easing comps.
In terms of adjusted EBITDA in light of the revenue trends discussed above we have continued to identify additional opportunities to mitigate impacts to the bottom line success.
<unk> successfully slowed hiring in the third quarter, which contributed to the sequential declines in opex across each of our sales and marketing research and development and G&A in the third quarter. We also successfully executed a sublease of our New York headquarters, which will help us drive a meaningful reduction in G&A expenses quarter over quarter in Q4.
We are focused on further optimizing our cost base through these and other initiatives in order to better align with the current demand environment and preserve cash over the coming quarters.
With that I will turn to our financial outlook for Q4 2022, we expect overall revenues in the range of $129 million to $134 million, we expect adjusted EBITDA in the range of 12 to 17 5 million and we expect stock based compensation expenses in the range of three 5%.
<unk> 5 million.
I am proud of the results our team delivered in the third quarter further demonstrating our agility in adapting to the rapidly evolving digital media landscape. Looking ahead, we are focused on growing audience engagement around short form video further optimizing our cost base and preserving cash over the coming quarters. Thank you and 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 you are 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 our roster.
Our first question is from Jason <unk> with Craig Hallum. Please go ahead.
Hey, guys. Good afternoon wondering if you can just maybe talk a little bit further about how you are managing growth investments versus.
Little bit more cost rationalization and trying to preserve the bottom line.
So I can say from a cost optimization perspective, we are continuously looking at fixed versus variable expenses and as you recall a component of our cost of revenue is fixed which is in part what drove the sequential decline in adjusted EBITDA in light of the <unk>.
Celebration in revenue from Q2 to Q3, and we have continued to take cost actions throughout this year to help mitigate.
The macroeconomic headwinds such as the unification of the sales or general and administrative expenses as well as tech at the start of the year and we had also announced the buzzfeed needs changes in Q2 as well.
Yes.
The market really has shifted to short form vertical video and creators we've made investments in that in that area and we're seeing the benefit of that and we also as Felicia mentioned.
Have always look for cost actions, we can take in other areas that maybe arent growing the way the way they were before some of these shifts in the market.
Yeah.
Hi, Ken.
I mean.
Sorry, just if I can add.
If you look at our Investor letter you will see some of them engagement trends on you will see that for example, <unk> shorts on tick tock.
They have grown more than 60% versus Q2 2022.
So while the timing of spend is not reflecting the entirety of what it has been measuring in terms of engagement. We are quite pleased that we said results. We have obtained so far and the investments that are we leading short form video.
So that's what I wanted to ask for the follow up so you've got the time spent down 28% I think.
But obviously short form is an offsetting factor I believe can you just can you help parse out the short form dynamics and how that impacts that time spent.
Yes, I mean, one of the biggest declines in time span have come from from legacy Facebook video for example, which is the longer video.
Facebook platform with servings.
Distributing to their audience than that longer video.
<unk> has both.
Mid roll advertising for monetization and as because it's longer will will take a fair amount of time.
Consumer time, when there to view to view those videos.
This book and other platforms have started to deemphasize that kind of video and instead focus on vertical video.
And that's.
A long term opportunity for us and we're seeing that growth as Marcelo mentioned earlier.
In our in our business, but it does.
Have a lag both on monetization and for the measurement to start to come in to give us a clear a clear window into how that short form consumption is replacing.
Some of the legacy video that was from those platforms.
Comscore Nielsen other other measurement services have to figure out how to strike deals with by dance or expand their deals with with meta.
Our Youtube in order to start to measure time on some of those platforms.
A bit of a lag waiting for some of those measurement deals to catch up.
I would also add that our owned and operated and Youtube continue to be up year over year. So what youre seeing from an overall time spent decline is majority Facebook and the other important note is when youre thinking about the distributed network Thats only approximately 20% of our total advertising revenues and so in looking at total owned and operated that is the majority.
Alrighty and that has shown.
Strong improvement both year over year and quarter over quarter.
Alright, Thank you guys I appreciate it.
The next question is from John Blackledge with Cowen. Please go ahead.
Hi, This is James Kopelman off for John Thanks for taking the question can you talk about the advertising environment into the fourth quarter now into November where you're seeing the resilience and consumer demand that you highlighted.
And which industry verticals are maybe performing better.
Or worse from an AD spending perspective, and then I have a follow up.
Sure. Thanks, Dan so the.
The.
First the part that is a bit still uncertain is.
All consumers behave this holiday season, so we don't yet know.
If people will buy less Christmas present for their kids or or whether there'll be that kind of impact in the holiday. So we'll have to wait and see.
What we're seeing in the market is in our conversations with advertisers were seeing strength in financial services and some of our emerging verticals like toys and travel, which is which is a positive signal.
But we're seeing softness in CPG and retail.
Imagine that's not unexpected that you would see in the tech sector for example.
A little less bullishness on and a little less spending.
Because of the macro shifts that there that they are facing.
Overall, we feel that the advertisers that we're talking to and our sales team is talking to feel very itchy.
Encouraged by the way that the brand safety that we offer the iconic brands we offer the multiple product lines, we have the ability to reach.
The millennial and Gen Z generation that unprecedented scale are all really real differentiators and so all of the partners that were talking to even ones an error in those impacted areas. I. Just mentioned are very engaged in trying to figure out once they have more clarity on the market how they can.
Engage with us and partner with us.
Yes.
Great. Thanks, and then a quick follow up advertising is currently around half of achieved revenue. If you look out longer term how should we think about the relative percent of the business from advertising content and commerce is your goal to eventually get to around a third a third and a third from each source and how are you thinking about.
This generally as you scale the business over time thanks.
Yes, the appropriate taken is to build a diversified portfolio of revenue lines.
Gives us the flexibility and resiliency as the market changes.
We can do a little bit trying to predict the market, but more we want to be able to react and adapt to the market as things change and so for example, commerce was.
A huge driver for us during the pandemic lockdowns because physical retail was club was closed and retail was a real strong point.
And then at other at other periods, you see branded content, our content line's been being <unk>.
Advertisers are partners are looking for so we're not trying to set a kind of idealized ratio. We're trying to have really strong business lines in multiple areas. So that we can react to whatever the market throws our way.
Yes.
Yeah, and we've got it thanks, James with showing up sorry, James we are planning to speak more about our goals in our Investor day. Once we announce it that it will happen sometime in 2023.
Great. Thanks, I appreciate the color and best of luck in the fourth quarter. Thank you.
The next question is from Brent <unk> with Bank of America. Please go ahead.
Hey, guys. Thanks for taking the question.
I guess just in terms of obviously, the cautiousness in <unk> and advertising I mean, that's fairly low.
Surprising I am just curious join our team.
Anything you can talk about 'twenty three in terms of conversations with advertisers.
Sort of should.
Should we take the guidance that you provided as <unk> as sort of a run rate through 'twenty three or is there potential that things could get worse and any sort of color on that would be helpful.
Yes, I would say.
That part of the reason that we've been providing quarterly guidance is that the market is very unpredictable right now and we've seen a lot as you know as.
As well as anyone we've seen a lot of shifts in the macroeconomic environment as well as consumer behavior shifts driven by technology platform shifts of the pandemic or other other factors.
And so we.
We really.
Can share sort of anecdotally.
Talking to our biggest advertisers in our biggest partners. They are very engaged and they're looking towards the future, but they are feeling that there's a lot of uncertainty in the market and so I would say that.
Message is the message for next year.
That I hear from a lot of our partners is we want to see what's going on with the economy. We wanted to get a sense of how all this that's going to shake out.
<unk> continue to roll forward like this or is there.
Shifts in the market how did the holiday shopping season go and do.
Consumers come out in force and spend.
A lot over this holiday so theres a lot of those kinds of questions that we'd rather wait for a few more cards to fall to be able to really understand what's going on in the macro economy before before making any hard predictions about about Q1, but it feels it definitely feels like our partners are very.
Engaged and Theyre talking about ideas and partnerships and things that they can do as soon as they have that kind of clarity about about where the market is headed.
As it relates to our Q4 guide and just general comment we have noticed from a historical perspective that our larger advertisers are still strong showing our strong retention rates. So we are still looking at our larger advertisers.
<unk>.
Renewing with us at around 90%. However, their overall spend has been most impacted with CPG retail and tech telco being the major sales verticals.
<unk> that have shown declines from a year over year perspective, and so while we're seeing Q4.
Be muted from a seasonal lift versus what we've seen historically.
That is one factor that is important to us and our outlook for 2023.
Got it that's very helpful color and just maybe as a follow up.
I think you do.
Digital advertising, there's just there's a lot of changes both cyclical now and obviously just at an industry level.
You can name all several platforms I'm just curious.
From your perspective.
How 'bout students trying to position themselves and I know one thing you talked about brand safety.
How big of an opportunity could that potentially be in potentially this being an opportunity for you guys to pick up incremental share.
On that would be helpful as well thanks.
I think that one of the big realizations recently from the platform just how much work it takes to moderate content.
And how much money it takes billions of dollars spent.
Meta on this.
Challenge in.
If your model depends on getting free content from users.
Our advertisers want high quality safe content you have this natural contradiction in our business model and that has required these the big platforms to spend more and more money and time and effort and apply more and more technology to filtering out content looking for those gems of good content that are acceptable to their advertising partners.
And while they struggle with all the polarizing content hyper political content harassing content misinformation all of those kinds of issues.
I think that as that continues to unfold and makes our model look.
Lot more.
Appealing, which is standing behind the content, we make partnering with trusted creators and having that affiliation that they work with us. They know that they have to make content that is that is brand safe and it doesn't have any of the problems that I was just mentioning.
And if you're an advertiser or a partner and you can partner directly with the content you don't have to worry about this larger challenge and we are really one of the few players in the space that is making.
<unk> brand safe content at Internet scale with brands that people know and love across all the platforms, where consumers are consuming content and thats very appealing for our advertisers who are struggling with some of the challenges that that have been well documented with the big platform.
So I think that there is there's a big opportunity.
<unk> there too to really extend our lead as trusted brand safe content operating internet scale and Theres a lot of upside in that model and I think it's something that also has the benefit of being good for society and good for democracy.
And good for the public as well as for the Advertiser.
And it all depends on any particular platform.
We're platform agnostic I think that that is a very vague.
They go to strength for Fort Meade, and congratulations Brent on the baby.
Oh. Thank you. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jonah Peretti for any closing remarks.
Thank you all for joining US today, we look forward to speaking with many of you over the coming weeks, thanks for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.