McGraw-Hill: Beating the Street

McGraw-Hill is a leading provider of information services and serves the education, financial services, and business information markets. The Company is a major publisher of newsletters, magazines and printed books. It also distributes its information services over the Internet and other digital platforms, through trade shows and conferences and also through wireless and on-air broadcasting. In this segment, we will analyze McGraw Hill’s growth strategy.

The Company operates in three business segments – Education, Financial Services and Information & Media. McGraw-Hill Education addresses virtually every aspect of the education market from pre-K through professional learning through the publishing of books, online learning and multimedia tools.

Standard & Poor’s, which makes up the Financial Services business of the Company, is the world’s leading provider of independent investment research, indexes (S&P 500) and ratings. McGraw-Hill Information & Media group provides professionals and governments with information and business insights through its publications and sites (BusinessWeek, Aviation Week Group, Platts, McGraw Hill Construction, and other vertical business properties).

“More Global, More Digital, and More Productive” is the Company’s strategy for future growth.

Global is the mantra for the Company and it is evident from the fact that one-third of the Company’s employees are posted outside the US and Standard & Poor’s rates more debt issues in Europe than it does in the US.

Financial Services:

As a part of its future growth plans, the Company has been expanding its business in growth markets by identifying and acquiring companies that are uniquely positioned, have strong domain expertise and are of strategic importance to McGraw-Hill’s business. Standard & Poor’s acquisition of Goldman Sachs’ two equity indexes and the Goldman Sachs Commodity Index (“GSCI“) will help the Company consolidate its position in the indices market.

The Standard & Poor’s division has completed the sale of its mutual fund data business to Morningstar, Inc., as part of the streamlining process.

The Company is investing heavily in technology and plans to build a state-of-the-art data center to strengthen its technology-based products and provide a majority of its products online or through other digital platforms.

Standard & Poor’s web-based B:B platform Capital IQ has integrated a number of analytical tools and the Company plans to add more content and tools to it. Since 2004, when Standard & Poor’s acquired Capital IQ, its customer base has doubled to more than 1,700.

Education:

In the Education business growth will come from the Higher Education and professional publishing businesses. Higher education and professional courses have been experiencing increased demand both in the domestic market as well as in the International markets. The Company has introduced 40 new online courses in 2006. Delivery of higher education and professional courses through the Internet has been growing rapidly and the Company plans to take advantage of this and introduce more online courses in the coming years.

Information & Media:

With the Internet reshaping the B2B market by creating new opportunities for delivery, the Information and Media segment of McGraw-Hill has undergone a rapid transformation.
In September 2006, J.D. Power and Associates (JDPA) a McGraw-Hill company, acquired Automotive Resources Asia (ARA), a market strategy and information firm specializing in Asia’s car markets. This acquisition will aid McGraw-Hill to expand its business opportunities rapidly in the world’s fastest-growing automotive market: China and the ASEAN region.

The Company’s premium brand, BusinessWeek has evolved as a strong online property, however, it lacks in community features and does not leverage user-generated content well enough, but attracts professionals and decision makers with a very high average HHI of over $90K. The site commands high ad rates of $40 to $108 CPM, and is one of the crown jewels of the portolio. It however misses the boat on one of the most important trends in the media industry today: blogging, doing a sub-mediocre job in that sphere that it will need to patch up ASAP, most likely, by acquiring savvier business blogs like GigaOm and Seeking Alpha. As a result, Business Week’s overall business situation is not great, despite their excellent content and traffic.

McGraw-Hill has outperformed the S&P 500 for each of the last ten, seven, three and one-year periods and its cash dividends have increased at a CAGR of 10.3% since 1974. That surely is no mean achievement.