By practically every measure, investors should consider abandoning ship on internet media firm BuzzFeed (BZFD). On Thursday, management announced that it will lay off 15% of its staff, amounting to about 180 people. Even worse, the company will get rid of BuzzFeed News, its journalistic arm. Unsurprisingly, BZFD stock fell sharply on the disclosure. As well, it attracted options trading dynamics featuring bearish implications.
Undeniably, BZFD stock represents an extremely speculative market idea. Trading hands in literal penny stock territory, it’s not a venture to enter into if you don’t understand the risk-reward profile. At the same time, for contrarian speculators willing to read between the lines, BuzzFeed could be an interesting wager. Essentially, the layoffs allow the struggling enterprise to rid itself of inefficient or unviable businesses.
First, to understand the opportunity behind BZFD stock, one must consider the realities of the underlying market. Basically, everything lives or dies around digital advertisement dollars. While BuzzFeed and its peers can produce sterling journalism, if no real demand exists for straight reporting of facts of significant events, the enterprise will eventually fold, which is exactly what happened.
While it’s a terrible state of affairs, companies must provide what consumers are willing to pay for, not necessarily what they say they want. Sometimes, these two dynamics don’t align, thus forcing media firms to chase the dollar over the truth. Thus, it’s not terribly surprising that in the past month, BZFD stock plunged nearly 30%.
As for BuzzFeed’s unusual stock options volume, the activity is also a victim of this vexing framework. Following the close of April 20, total volume reached 6,368 contracts against an open interest reading of 23,361. The delta between the Thursday session volume and the one-month average volume came out to 981.15%.
Further, put volume hit 4,422 contracts while call volume only reached 1,946. Mathematically, this pairing yielded a put/call volume ratio of 2.27, on paper favoring the bears. Still, that might not be the end of this story.
BZFD Stock Can Now Focus on Leading Through ‘Bleeding’
A common trope in mainstream media, companies today still prescribe to the general sentiment, if it bleeds, it leads. According to Psychology Today, news programming uses a hierarchy based on this cynical sentiment. Specifically, the publication states the following:
Fear-based news programming has two aims. The first is to grab the viewer's attention. In the news media, this is called the teaser. The second aim is to persuade the viewer that the solution for reducing the identified fear will be in the news story. If a teaser asks, "What's in your tap water that YOU need to know about?" a viewer will likely tune in to get the up-to-date information to ensure safety.
To be sure, there’s never been a more important time for accurate reporting to flourish in the era of fake news. “Better journalism is part of that,” stated Craig Newmark, founder of Craigslist, when discussing the pertinence of the practice. “I learned in high school history that a trustworthy press is the immune system of democracy.”
While a trustworthy press may be the immune system of democracy, this immune system also needs support – the financial kind. Invariably, then, powerful forces inherently push or influence certain narratives to be broadcasted, according to a research paper published by Harvard University.
Put another way, what certain media outlets want to accomplish – pure journalism without undue influence from outside agencies – is extremely difficult to pull off, particularly for a relatively low-capitalized entity. Instead, it might make more financial sense to simply give what the people want.
Inherently, a moral dilemma materializes because appealing to the lowest common denominator may reduce the cultural and intellectual substance of a society. However, not taking a cynical approach to content distribution – and thus not extracting maximum advertiser dollars – would be akin to a street preacher howling in the wind.
What good would that be?
The Right Decision (at a Cost)
Often times, politicians will lambast the media as the convenient “other,” a foreign entity with a nefarious agenda to corrupt the minds of the American people. However, the ugly truth – the real enemy, the real “other” – is that we give life to what the media feeds us. If we didn’t want to consume it, there would be little point in producing it.
Of course, hardly anybody wants to hear this because it would then force self-accountability for our collective actions. And so, the political circus continues, with the Ds and Rs obfuscating the real issues that matter so that the public remains perpetually distracted.
However, at the end of the day, everyone must pay the bills. And the cold, hard truth – if we’re going to talk about the truth – is that accuracy in journalism by itself is not an economically viable pursuit. BuzzFeed learned that it must compromise in order to stay afloat. Therefore, it really made the only decision it could make.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
