After raising $1.6B, Vice Media files for bankruptcy today and is being bought for $225M by its creditors. What a dramatic reversal of fortune! Vice raised $450M from TPG with a $5.7 billion valuation back in 2017. It appears that investors are either getting nothing or only getting pennies on the dollar back. Vice is not alone though. After raising ~$700M, Buzzfeed ($BZFD) ‘s current market cap is ~$83M and a few weeks ago the company announced a 15% layoff and shutdown of its news unit. Media is a very hard business. But Media business has always been hard since the internet. What were investors thinking when they invested half a billion dollars with a $5.7B valuation? I am truly curious. I dug out this article from WSJ back in 2017 and here is the interesting quote:
Vice, like BuzzFeed, Vox and other digital media outfits, looked especially attractive to traditional media companies a few years ago. All those companies were able to build large audiences of young people online at a time when cable TV was struggling to retain viewers under 35. But sustaining fast-paced growth has been difficult across-the-board for digital media companies, and traditional media giants now evaluate their investments with even more scrutiny than they did before.
Disney’s dance with Vice began in 2014, when A+E Networks—Disney’s joint venture with Hearst—invested $250 million in the digital media outlet. In late 2015, Disney invested an additional $400 million over two separate rounds, valuing the company at between $4 billion and $4.5 billion.
I suspect Vice became popular not because they built something resonating with the young people but because they got a lot of traffic from Facebook. When Facebook changed its news feed algorithms, its traffic tanked and its business model fell apart. Obviously, investors didn’t realize how much of Vice’s success relied on Facebook’s news feed algorithm. I do wonder, if ZIRP/QE hadn't existed back in 2017, would they have been able to raise the $450M at the $5.7B valuation? Would the investors have dug deeper during the due diligence process? We will never know the answer but I do feel the new risk-averse environment we are in will prevent investors from having this kind of devastating loss.