How Jonah Peretti and BuzzFeed Got to $850 Million

We passed the billion dollar mark awhile ago. Today a hot tech company is worth multiple billions of dollars, easily.

So if BuzzFeed, the super-hot listicle maker that also sends reporters to Ukraine, is really a “technology company,” as investor Chris Dixon argues, then why is it worth a mere $850 million?

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:

This article originally appeared on Recode.net.