Read This Successful Newspaper Story to Improve Your Portfolio

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If you were thinking that stocks of traditional newspapers companies are as good as dead, think again. Newspaper companies have been reinventing themselves by going digital, a move that should see them prosper in the long run and help them keep pace with the changing face of technology.

Around three months back, I had picked up one such company for analysis. When I look back, the stock has returned a solid 23% since then and its recently-released third quarter results affirm the fact that it is indeed making progress in a digital world.

Bouncing Back

Gannett (NYSE: GCI), which publishes USA Today and runs the largest newspaper chain in the country, trumped analyst estimates in the third quarter, driven by various tailwinds. The company’s revenue jumped 3.4% from last year to $1.3 billion in the third quarter, a welcome change from the second quarter when revenue had declined. Moreover, earnings shot up impressively by some 27% from the year-ago period to 56 cents per share.

The improvement in Gannett’s performance doesn’t come as a bolt out of the blue, as the company was working hard towards improving its revenue from digital avenues. And the improvement was there to be seen this time, as Gannett’s Broadcasting and Digital businesses improved from last year.

Moving Forward

Broadcasting revenue spiked by an outstanding 36% from last year as Gannett benefited from advertisement spending related to the Olympics and the presidential election. Also, Digital revenue rose yet again this quarter as CareerBuilder, the online employment website, turned in another solid performance. And if we take a look at the bigger picture, Digital revenue across the company grew an impressive 23% from last year, and Gannett’s all access content subscription model (paywall) had a role to play in it.

As technology has advanced, mobile devices have taken precedence over traditional newspapers when it comes to reading content and advertising. Hence, newspaper companies have been charging a subscription for giving access to content on their online portals. For example, Gannett’s peers News Corp.’s (NASDAQ: NWS) News International and The New York Times Company (NYSE: NYT) have been using a paywall method for more than a year now.

NYT’s paywall has won it plaudits at the hands of analysts, as the company is successfully mitigating a fall in print advertising through increased digital circulation. The company’s subscriber count has been growing at a decent pace and it clocked 509,000 digital subscribers in just over a year after introducing the paywall.

News International, which ran into trouble with its paywall earlier this year as it charged readers despite their cancellations, charges a subscription for online versions of The Sunday Times and The Times. The company is of the opinion that its paywall model has been beneficial for advertisers on The Times’ website as readers who pay for content are more engaged, leading to better advertising revenue.  

Paywall-ing Growth

Hence, a large and diversified brand such as Gannett might also see a bump in online advertising in the future driven by paywalls, as opposed to 6%-7% decline in advertising spending it witnessed last quarter. One major positive last quarter was that Gannett grew its circulation revenue an impressive 10%, which is the first increase in the last five years, as its paywall started bearing fruit. The company has installed paywalls at 71 of its newspapers so far and expects to complete the exercise by the end of the year.

Gannett expects to see a 25% bump in circulation revenue by the end of next year, resulting in an operating profit of $100 million. In addition, Gannett is moving with alacrity to improve its Digital Marketing Services offerings. The company understands that local businesses are spending money on digital services and Gannett looks to take advantage of its existing expertise in this space and further improving it.

A Few More Words

Gannett’s paywall model seems to be a successful one initially as the company has been able to improve its circulation revenue for the first time since 2007. Moreover, its broadcasting business has done pretty well and television revenue is expected to grow in the late-twenties in the fourth quarter. The company is poised to benefit from political spending in the current quarter as well.

Gannett is working hard to monetize its online business and expects its All Access content subscription model to deliver further growth in circulation revenue in the long run. Its digital marketing business is now active across all its markets and should help Gannett rake in more revenue. Moreover, the revamped avatar of USA Today has opened to positive reviews. The company is looking to drive its digital growth aggressively and so far it has done well.

But there’s another area where Gannett is quite aggressive. The company aggressively returns cash to shareholders through buybacks and dividends. It has already returned $117 million so far this year by way of share repurchases and aspires to return more in the future. In addition, Gannett sports a pretty solid dividend yield of 4.5%. A combination of all these factors makes Gannett an intriguing choice for your portfolio. 

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