The Echo-nomist

Choose your favourite business activities and we’ll guess the valuation of your company… $1.5 billion.

Jonah Peretti is hoping for a $1.5 billion valuation for his company Buzzfeed. Buzzfeed is a New York based media, news and entertainment company, especially known for their quizzes They declared that they are going public via SPAC.

What is SPAC?

Special Purpose Acquisition Companies or SPAC in short, are companies with the sole purpose of taking other companies public by acquiring them. They are a shell company set up by investors and raise money through an IPO. They use this money to acquire other companies. They have no commercial operations i.e. they don’t deal with products or selling something.

The money raised by their own IPO is deposited into an interest bearing account until they find a private company looking to go public through an acquisition. Once the acquisition is complete, the investors swap their shares with those of the merged company or redeem their SPAC shares to get back their original investment.

Buzzfeed has a deal with 890 5th Avenue Partners Inc. for the acquisition, which is expected to close by the end of the year. If that name sounds familiar, it’s because that’s the address of the Avengers Headquarters from the Marvel universe.

Jonah Peretti founded Buzzfeed along with John Steward Johnson in 2006 with the aim of tracking viral content. They reached their peak at 2016 when their valuation was $1.7 billion. Whoa. The SPAC acquisition will hopefully value them at $1.5 billion, but it’s still less than their 2016 high. They plan to buy the digital publisher that deals in streetwear, music and pop culture – Complex Networks for $300 million. Big things in store for Buzzfeed!

Jonah Peretti executive helped found HuffPost along with Arianna Huffington in 2005. And then just last year, Buzzfeed acquired HuffPost from Verizon.

One way to fight your competitors is to work with them. Mr. Peretti has also talked about merging with it’s competitors like Vice group, Vox Media, Group Nine (which includes PopSugar).

But why are they making all these big changes suddenly??

To fight the Facebook – Google – Amazon triopoly.

Monopoly is a market with a single seller, selling unique goods and/or services. Similarly, triopoly is a market where 3 sellers (companies in this case) dominate a market. We’re talking about the triopoly in advertising.

Google, Facebook and Amazon are known as the big three of digital advertising. They had a majority of the market share before 2020, but the pandemic gave them a boost they didn’t even ask for.

People spent increasingly more time on social media and screen during 2020 and marketing strategies shifted to these platforms to target specific users. Since they’re such big companies, they already have voluminous data on their users which helps them target the right audience and the money spent by companies on advertising is effective. This leads to the companies investing again and again to grow their business. It’s like a virtuous cycle and if this continues, their business and user base will continue to grow.

According to an ad agency, GroupM, the big three’s share of the U.S. digital-ad market grew to 90% in 2020 from 80% in 2019. Ain’t no stopping them now.

Buzzfeed wants a share in all this fun. That’s why they’re trying to expand their business and have a larger share in the digital ad sector. And Buzzfeed isn’t the only company fighting the triopoly, other smaller companies are too! This won’t stop them from trying to do whatever they can to grow their company and attract more users.

Things aren’t so bad for them though. Last year, they were profitable for the first time since 2014. They achieved this by cutting about $30 million from expenses and the pandemic factor. They also won the Pulitzer Prize a few weeks ago for articles that reported and revealed efforts by Chinese governments to detain Muslims. The Pulitzer Prize is kind of a big deal for newspaper, journalism etc.