What News Company is a Good Pick Now?
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many investors are staying away from newspaper stocks because the internet has taken away the previously wide moat of the business. However, Jim Cramer has recently turned bullish on The New York Times Company (NYSE: NYT) after the company announced that it planned to divest the Boston Globe in order to focus on its core business. According to him, The New York Times’ core business was not the print business anymore, but the content business. Is it a good stock to buy now? Let’s take a closer look.
Growing the Digital Business
The New York Times, incorporated in 1896, is considered a global leader in multimedia news and information, with several businesses including newspapers, digital and investments. The business is divided into two main segments: The New York Times Media Group and New England Media Group. The majority of the company’s revenue, nearly $1.6 billion, or 80% of the total revenue, was generated from The New York Times Media Group, while the New England Media Group contributed nearly $395 million in 2012 revenue.
The company generated its revenue via two main sources: Advertising and Circulation. In 2012, the advertising revenue experienced a 6% year-over-year decline, whereas the circulation revenue increased 10.4% compared to 2011. Thus, in the full year 2012, the circulation revenue of $953 million surpassed the advertising revenue of $898 million. The growth in the circulation revenue was due to two factors: the growth in digital subscriptions and the increase in print circulation prices. Those were quite interesting business moves. The New York Times seemed to be focusing on and growing the digital business. At the same time, they were raising the circulation prices of the traditional print business. Charlie Munger, at the DJCO’s annual meeting, commented that The New York Times had a pretty modest prospect. It would continue to make pretty good money, but it was not going to make a whole lot of money. It had a decent niche so that people might be ready to pay $4 or $5 for its newspaper at the airport.
Recently, the company announced that it planned to sell The Boston Globe to limit its exposure to the declining print advertising business and to focus on its core business. In 1993, The New York Times bought the Boston Globe for $1.1 billion in 1993. Charlie Munger, at the DJCO’s annual meeting, thought that the company destroyed an enormous amount of equity by acquiring a newspaper in Boston that was losing money.
Gannett has a Better Operating Performance
In 2012, The New York Times reported $133 million in profits, or $0.87 per share. At the current trading price of $9.20 per share, The New York Times is valued at around 5.64x EV/EBITDA. Compared to its peers Gannett (NYSE: GCI) and The Washington Post Company (NYSE: WPO), it seems to have a quite reasonable valuation. Gannett, with a current price of $19.85 per share, is worth $4.56 billion on the market. The market is valuing Gannett at around 5.23x EV/EBITDA. The Washington Post’s share price is currently $407 per share, with a total market cap of $3 billion. It is valued similarly, at about 5.2x EV. Among the three, Gannett is the most profitable business with the highest operating margin. While the operating margins of The New York Times and The Washington Post were only 8% and 6%, respectively, Gannett has an 18% operating margin. The high operating margin was due to extremely low operating costs. Over the past 12 months, Gannett’s Sales, General and Administrative costs (SG&A) accounted for only 24.4% of the total sales, while the SG&A of The Washington Post was much higher at nearly 39.5%. The New York Times had the highest SG&A among the three at 43.8%.
Foolish Bottom Line
The sale of the Boston Globe would definitely make The New York Times more profitable and drive up its share price in the near term. However, among the three newspaper companies, I am more impressed in Gannett due to its lowest operating cost. As those three companies have similar valuations, Gannett is a better pick than the other two.
hoangquocanh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!