BZFDW - BuzzFeed Warrants: Stars Aligned For An Asymmetric Upside

2024-07-08 13:10:25 ET

Summary

• Despite a 170% rally year to date, BuzzFeed stock is still significantly undervalued trading at only 0.6x P/S, well below the sector average and its comparable peers.
• Given the strong tailwind from both the ongoing business turnaround and Vivek Ramaswamy’s activist investment, the stock appears well poised for a significant surge in the second half of 2024.
• BuzzFeed warrants represent a compelling risk reward opportunity as the warrant tends to outperform its underlying stock in an up market due to higher beta and the accelerated delta effect.
• Multiple well-defined catalysts over the next six months will potentially generate at least 4x upside for the BuzzFeed warrant. The next upcoming catalyst is only one week away on July 15.
• The ultimate downside of holding the BuzzFeed warrant is loss of the warrant premium. However, it can be mitigated as the warrant is still 2.5 years away from its expiration date, ample time for the management to stage the turnaround and materialize the upside.

Investment Thesis

BuzzFeed's (BZFD) warrant ( BZFDW ) jumped on our radar screen for three reasons:

1) Stars truly aligned for the upside. With the successful asset sale, ongoing business turnaround and unexpected activist investment in the first half of 2024, it seems that the stars have finally aligned for BuzzFeed to deliver some serious upside for its stock and warrant.

2) Well defined catalyst calendar. The potential upside for BuzzFeed stock and warrant is not wishful thinking but is supported and driven by a string of well-defined fundamental and activist catalysts over the next six months, with the first one coming up in a week on July 15, 2024.

3) Asymmetric risk reward profile. Due to the high strike price, the BuzzFeed warrant has been priced more like a deep out of money call option while its underlying stock is well poised for a parabolic run. A contrarian long position in the BuzzFeed warrant at the current level presents an asymmetric upside with very limited downside. ...

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