What happened
Shares of BuzzFeed(NASDAQ: BZFD) popped as much as 18.8% this week, according to data from S&P Global Market Intelligence. The digital media company and heavily shorted penny stock has experienced huge volatility to start 2023 after announcing new artificial intelligence (AI) initiatives. As of this writing, shares are up 175% year to date but are still down 80% since going public in late 2021.
So what
BuzzFeed, a media site started back in 2006 that became popular due to its personality quizzes, is about to start using artificial intelligence (AI) for editorial and business operations. This is according to The Wall Street Journal, which acquired an internal memo from BuzzFeed CEO Jonah Peretti outlining the company's new AI strategy.
Investors embraced this idea, shooting BuzzFeed shares up in the days following the report. The market has become enamored with AI since to start of the year, mainly due to the explosion in popularity of ChatGPT and Microsoft's new investment into its parent company, OpenAI. Microsoft's search engine, Bing, has just released its own AI chatbot to the public, powered by OpenAI's algorithms. There is a lot of hype around AI right now. Time will tell if it fulfills all the promises everyone seems to be making about it, though.
BuzzFeed needed this stock boost, too. Shares were hovering below $1 in the last months of 2022 and to the start of 2023, which puts it at risk of getting delisted from the Nasdaq Stock Market. The stock is also heavily shorted, with 15% of its float estimated to be sold short as of this writing. High short interest can increase volatility, which is likely contributing to BuzzFeed's wild stock swings as of late.
Now what
It is possible BuzzFeed is turning to AI-generated content because it feels its current business model is unsustainable. In its latest earnings report -- for the third quarter of 2022 -- the company posted an $18 million operating loss on $104 million in revenue. Its main expenses are employees, and it looks like BuzzFeed had too many coming into the second half of 2022. Subsequently, management decided to lay off 12% of its staff. AI-generated articles may be in line to replace these lost workers.
Some people might not like BuzzFeed firing humans and trying to replace their work with robots. But with the company unable to turn a profit at the moment, it is no surprise that management is getting creative as it tries to lean up its income statement.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
