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Newspaper Stocks: NYTimes, Gannett, McClatchy

Posted on Monday, Aug 25th 2008

US newspaper stocks have been facing the brunt of worsening economic conditions and the attack from digital media. The main source of their revenues – vertical classifieds – have steadily been moving online. Their response should be to invest in and acquire online verticals, which has happened to some extent. Not enough, though. The latest quarterly results of three companies, The New York Times, Gannett, and McClatchy, thus, were representative of the bloodbath their stocks have been experiencing.

The New York Times Company (NYT), though it continued to retain the number one newspaper website position for June, had a rather poor second quarter as it missed the Street’s revenue forecasts. Revenues for the quarter were $742 million, a marginal sequential decline from $748 million the previous quarter and a 6% decline from last year’s revenues of $789 million. The Street was expecting revenues of $754 million.

EPS of $0.26 was better, however, than the Street’s expectations of $0.22. EPS grew 24% compared to the previous year.

Of the three assets of a newspaper, brand, traffic, and ad network, their brand continues to be strong. The Times raised their home delivery and news stand prices, which was reflected in circulation revenue growth.

Their web traffic is also increasing as they continue their transformation to the online format. Internet revenues grew 13% over the previous year and generated $91.3 million, or 12.3% of the company’s revenues. Internet advertising revenues generated 18.3% of revenues in the quarter. According to Nielsen Online, had 17.7 million unique visitors, recording growth of 41% over the year. Their audience is nearly twice the size of the next newspaper website. However, online revenues are not growing fast enough to compensate for the loss of print advertising revenues.

Ad revenues were down 10.6% compared to the previous year. Ad revenues at the news media group decreased 11.8%, with national advertising down 5.7%, retail down 9.5%, and classifieds down 24.4%. Recruitment, real estate and automotive were the sectors that were most affected by the decline in classifieds. Management noted that companies were further tightening their ad spending.

The stock reached a new 52-week low last month when it hit $12.08. It is currently trading at $13.21.

1yr NYT

The other newspaper company committed to online transformation is Gannett (GCI). Gannett has been moving into the online space through various strategic relationships and investments.

As part of its strategy to become the largest local content aggregator and distributor, this quarter it purchased 57.5% of ShopLocal for $7.875 million. ShopLocal is the leader in multi-channel shopping and advertising services. It offers a suite of solutions that connect advertisers and consumers, both online and in-store.

For the quarter, Gannett’s revenues of $1.7 billion met analysts’ expectations. Revenues were sequentially flat, however, and fell 11% over the year.

EPS of $1.01 missed the Street’s expectations by a penny. Sequentially, EPS grew 32% but decreased 19% over the year.

Gannett continued to gain in their digital operations, with revenues growing 6% over the year. Domestic publishing online revenues increased 3%, broadcasting grew 17% and Newsquest’s growth rate exceeded 25%.

In June , Gannett’s US websites had 23.1 million unique users and reached 14.1% of the Internet audience, and in the UK, Newsquest was accessed by 7.5 million unique visitors with over 95 million page views.

The company is expecting the Olympics and the US elections to pull up revenues. They projected a gain of 5%-9% in the Q3, but they are obviously feeling the pinch in margins as newsprint prices continued to rise this year.

They said that they were looking at more strategic acquisitions. Hopefully, they will pay attention to the gaps I identified and gain presence in the online matchmaking/dating, sports, business and finance, real estate, and auto spaces.

The stock fell to a 52-week low of $14.62 after the results announcement. It has recovered since and is currently trading at $17.67.

1yr GCI

The third-largest US newspaper company, McClatchy (MNI) is not faring any better than its peers. In the recently announced Q2 results, revenues of $490 million missed the Street’s expectations of $495 million and declined 16% over the year. Sequentially, revenues grew by a marginal $2 million.

EPS grew sequentially to $0.21 from $0.02 the previous quarter. The Street was expecting the same results. In the previous year, EPS stood at $0.48.

As for other media stocks, advertising revenues pulled overall revenues down. Ad revenues fell 16.8% in the quarter, driven by a 28.1% fall in classifieds. Circulation revenues were also down 5.2%.

Online, however, is a different story. Online revenues contributed 11.8% of total revenues compared to the 8.6% contribution a year ago. Online retail advertising also grew 80.7% compared to the 7.9% drop in print retail advertising.

McClatchy’s online efforts are worth noting. According to the company, “A decade ago, most of our online ads were up sells from print or a combination buy with print. In 2006, 70% of our online revenues were tied up with print. And now year-to-date nearly 50% of our online revenues come from ads that are placed online only.” This is significant because the company is establishing a separate, independent business from their print product – a trend that I have been talking about.

McClatchy has been focused on diversifying their revenue stream and have gotten into direct marketing opportunities with niche publications and with special direct mail pieces. For example, in Kansas City they launched a new young reader publication earlier this year and expect it to generate over $2 million in revenue this year.

They continue to maintain their online and local focus. They see themselves as a local media company, maintaining their mass reach and leading local online sites in targeted advertising vehicles and targeted direct mail. They realize that with online, they can go down to individual or database marketing and with the newspapers still keep their broad reach. They don’t see print going away soon, but realize that the print business will need to be smaller and a more cost-efficient one.

The stock hit a new 52-week low of $3.30 last week and is currently trading marginally higher at $3.58. A year ago, the stock was trading at a 52-week high of $23.58.

McClatchy chart

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