Newspapers and other media publishers have had a hard time over the past year or so, as a slowing economy and an ongoing reader and advertiser migration to the internet has ravaged revenue. In the past week, four publicly traded newspaper publishers fell to new lows:
- Gannett (NYSE:GCI) fell to 1987 prices,
- Media General (NYSE:MEG) fell to prices lower that it's seen since 1992,
- New York Times (NYSE:NYT) fell to price levels seen in 1996, and
- News Corp. (NYSE:NWS.A) is scraping the bottom of its 52-week range.
As these media companies continue to post negative growth in revenue and earnings, share prices will keep falling unless the publishers can do something to stop the bleeding. Most newspapers now have an online edition of their publication, but this doesn't seem to be the cure as losses continue. Collaboration of former rivals may be the answer, though, and it is forcing companies such as News Corp.'s New York Post and long time rival the Daily News, neither of which is making money, to talk of joining forces in this new environment. Will this collaboration happen in the near future? I doubt it, but I expect to see changes like this down the road.
Let us take a look at the media company with the largest one month loss, and explore whether the declines were justified.
Media Bears
| Company |
One Month Loss* |
Market Capitalization
|
|
Gannett
(NYSE:GCI)
|
35.5% |
$4 billion
|
|
NY Times
(NYSE:NYT)
|
24.0%
|
$2 billion
|
|
Media General
(NYSE:MEG)
|
23.1%
|
$259 million
|
Meredith
(NYSE:MDP) |
20.5%
|
$1 billion
|
|
News Corp.
(NYSE:NWS.A)
|
20.2%
|
$38 billion
|
| *Data as of market close July 16, 2008 |
Extra! Extra! Read All About It! Gannett's Second Quarter Profit Down!
Gannett, publisher of USA Today, the largest newspaper in the U.S., recently reported a drop in earnings of 36%, along with a 10% drop in revenue. Over the past year, more than two-thirds of the publisher's share price has disappeared, taking it to levels not seen since Black Monday in 1987, when the Dow Jones Industrial Average lost 508 points or 22.6% in a single day. These declines in revenue and profit seem to be heavily weighted on loss of advertising sales. Across all of the publications, advertising revenue dropped 14% this quarter, with USA Today's advertising sales falling 17%.
It is interesting to note that a big chunk of these losses are from classified advertising. Classified advertising was down 19% for the quarter, compared to the 8% decline in retail advertising. This leads me to think a large portion of this money could come back into the hands of the publisher, should the economy begin to pick up. As discretionary income is reduced (by tightening of credit markets, declining investment values, and destroyed home equity), sales through classified ads will have obviously decreased. Should the economy come back, these sales could increase again. That said, Gannett isn't exactly in the most comfortable position to just wait out this storm. With almost $4 billion in debt, and less than $200 million in cash, I find it hard to believe that Gannett will continue to be able to pay its dividend - which is currently yielding almost 10% on the stock's price. (To learn more, read Is Your Dividend At Risk?)
I would like to see some big changes in this industry before trying to catch a bottom. Whether it be layoffs, and tightening of budgets (what Gannett is currently proposing), or mergers and collaboration (what News Corp has been contemplating) I need to see something before one of these companies looks good. We will keep an eye on them as the economy's outlook changes and visit again next month to see if anything has changed.
Add Your Two Cents
What do you think will happen with the newspapers going forward? Will Gannett fix its bottom line by cutting expenses? Will collaboration be the answer, to help bring these beleaguered companies back from the brink of death? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
