Gannett is Getting Better; Are you Watching?
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the age of the internet, traditional newspapers have taken a massive beating. According to Reuters, the industry has lost more than $20 billion worth of advertising revenue over the last five years as advertising has moved on to the internet and reaches the consumer through PCs or snazzy mobile devices such as tablets and smartphones rather than newspapers. In a recent blog, blogger Asit Sharma told us how The New York Times Company (NYSE: NYT) has been badly hit by the paradigm shift in the way people read news and advertising is now done on the digital platform.
But even though the newspaper industry might be on a decline, its denizens are making concerted efforts in order to stem the slide and bring back their glory days. For example, NYT is undertaking efforts that will enable it to convert more non-subscribed readers to paid ones and is making moves in China through a Chinese portal. In order to keep their torch burning, the players in the industry are also undergoing an evolution that will help them establish their footing in the digital world and NYT isn’t an isolated example.
The bellwether reports
Such efforts were quite clearly visible in the second quarter results of the biggest newspaper chain in the U.S., and the publisher of USA Today, Gannett (NYSE: GCI). It posted estimate-topping numbers in the quarter but failed to seize the moment with an upbeat outlook, resulting in a modest stock price gain of 2.7%.
Gannett is in transition and isn’t exactly sure about how the future might turn out, because of which it didn’t issue any guidance and caused disappointment. But the stock does have the potential of bringing good news for investors going forward.
Breaking it down
Gannett’s top line is formed of three segments – Publishing, Digital and Broadcasting. The publishing business (or the old-school business) brought in revenue of $920 million, or 70% of the total, for the period. The publishing business declined 6% from last year and the company blamed “volatile advertising demand and the sluggish economic recovery” for the weak results.
Advertisement revenue declined 8% from the prior year period as low spending by advertisers due to macroeconomic concerns caught up with Gannett. However, apart from these headwinds, the company’s advertising revenue might also be suffering as advertisers focus more on online platforms in their advertising budgets.
But the other two segments, i.e. digital and broadcasting, showed some promise. Gannett’s broadcasting revenue jumped 11.4% from last year to $205 million in the quarter, driven by the strong performance of the Captivate Network. Similarly, the digital segment jumped 4.5% from last year, propelled by a strong performance by CareerBuilder.
Gannett is doing well to diversify its business and reduce its dependence on its traditional business. The company is making strategic investments to build up its digital and broadcasting divisions, which is a necessity nowadays.
For example, industry bellwether News Corp. (NASDAQ: NWS) recently decided to spin off its ailing newspaper business. Its newspaper business had been reduced to a speck in the huge News Corp empire, and was becoming difficult to manage. The unit had contributed just $864 million toward operating profit last year as against $4.6 billion contributed by entertainment units.
Getting back to Gannett, the company has monetized its digital publishing business and expects it to grow 25% by next year, resulting in an additional operating profit of $100 million. The company is pushing its subscription model quite aggressively and implemented it in 38 markets at the end of the quarter.
Also, Gannett is expecting a better performance in the second half of the year, largely driven by two big events in the form of the London Olympics and the elections toward the back end of the year. In addition, Gannett’s presence on mobile platforms is growing rapidly as well. The popular USATODAY.COM saw a 154% jump in page views and has been downloaded 15 million times across various platforms such as the iPad, the iPhone, Android devices and the Kindle Fire. Thus, there’s a huge scope for Gannett to grow and we shouldn’t turn a blind eye toward its prospects.
Gannett is coming off a decent quarter and has the goods to deliver going forward. Its traditional business might be suffering weakness like the others in the industry but the company is indeed trying to affect a turnaround by moving into more acceptable avenues.
Moreover, Gannett hasn’t performed that bad this year, making investors richer by some 10% so far. In comparison, peers such as NYT, The McClatchy Company and The Washington Post have been in shambles with negative returns. And throw in a solid dividend yield of 5.6%, Gannett becomes even more attractive with its turnaround plan and the possibility of a better future.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. If you have questions about this post or the Fool’s blog network, click here for information.