Because, of course, as investor Chris Dixon argues, BuzzFeed is also a media company, and media companies don’t get the same valuations as tech companies.
Except for a couple of very rare exceptions (Google, Facebook and Twitter), media companies need to pay people to make content. And without exception, media companies need to pay people to sell that content, which is why BuzzFeed has a staff of more than 500 people. Even if you want to slight the company as nothing more than a Reddit repackager, someone has to do that repackaging.
But if you’re only looking at BuzzFeed as a media company, then that $850 million might seem optimistic. Last year, people around the company pegged BuzzFeed’s 2013 revenue at $60 million, and now they’re supposedly on track for $120 million. Which means Dixon and his co-workers at Andreessen Horowitz are likely valuing Jonah Perreti’s company at something like 10x trailing 12-month sales. Investors value the New York Times at 1.2x sales. Time Inc. is at 0.77x. Time Warner, which mints money, is at 2x.
Boy, this is confusing. Can you square all this for us, Chris Dixon? Sure, says Chris Dixon, via email:
“One of the most important things you have to do in later-stage venture investing is think rigorously about how companies are categorized. For example, when we invested in Oculus last year, the big question was whether to think of it as a gaming-peripheral company, in which case the $200 million valuation we invested at seemed super high (what’s the biggest gaming peripheral exit?), versus thinking of it as a new computing platform like the mobile phone — in which case that seemed like a great bargain.
“Similarly, if you think of Buzzfeed as a print media company along the lines of the New York Times/Washington Post/Wall Street Journal, etc, the valuation seems rich. If you think about it as a strong candidate to be a key institution connecting media talent with the 5 billion people who will be using Internet-connected smartphones in a few years — a new media empire in a world where media empires reach 10-100x the audience that they used to — it seems like a bargain.
“I think the latter is true, which is why we invested, but certainly reasonable people could disagree.”
End note: You know who else thought BuzzFeed was worth something like $850 million? Disney.
I’ve seen various reports about Disney’s interest in BuzzFeed, but this is the one people around both companies seem to believe is true:
- Sometime last year, Disney CEO Bob Iger made an offer to buy BuzzFeed for more than $500 million. Peretti and BuzzFeed chairman Ken Lerer tentatively agreed to the deal.
- Then Peretti, who had already made a pile of money when he and Lerer sold the Huffington Post to AOL, had second thoughts, and decided he wanted to run BuzzFeed on his own, with an eye on an IPO.
- Disney went looking for other Web deals, and ended up buying Maker Studios for somewhere between $500 million and $950 million.
- In May, Jon Steinberg, Peretti’s COO, left the company and ended up at the Daily Mail U.K.
- Earlier this summer, Andreessen Horowitz made what BuzzFeed’s team considers a mezzanine round investment — designed to get them to the IPO, and/or set a new price for any other buyout offers.
- Last week, Greg Coleman, who helped the Huffington Post ramp up its ad sales before it sold to AOL, came aboard as Steinberg’s replacement.