Just a couple of days ago, and out of the blue, Amazon founder Jeff Bezos (himself not Amazon) took The Washington Post Company (NYSE:WPO)’s namesake newspaper and Watergate-era icon off its hands, ending four generations of stewardship by the Graham family.
What does an e-commerce pioneer like Bezos have to do with an old-media newspaper like the Post? More importantly, what does the future hold for The Washington Post Company (NYSE:WPO) following this turning point?
The right man for the job
Newspapers have undoubtedly reached a bottom, devastated by the disruptive changes brought by the Web and the mobile devices that completely reshaped media economics. This industry’s future picture is painted in dark colors. Based on PricewaterhouseCoopers’ latest estimates, total U.S. newspaper revenue is expected to deteriorate at a combined annual growth rate of nearly 3% over the next five years as circulation trends look up, but advertising will slip at a compound annual rate of 4.2%.
Did Bezos just make a mistake investing in a dying business? One thing is for sure: He is going to take his time away from Wall Street’s eagle eye, and put himself to the test. “We will need to invent, which means we will need to experiment…I am excited and optimistic about the opportunity for invention”, he said in a letter addressed to the employees of The Washington Post Company (NYSE:WPO).
The Post without “The Post”
Selling their family jewel was, obviously, a difficult decision for the Grahams, though the right one. Over the past, the newspaper publishing segment has been a drag on the company’s results. For the first half of 2013 alone, this segment reported operating losses of roughly $50 million, although overall the company scored an operating income of $116.1 million.
Fortunately, the Grahams have been doing a lot more than just publishing a newspaper. The company derives a big chunk of its revenue from Kaplan, a higher education and test preparation service. The rest comes mainly from six local television stations and the Phoenix-based cable provider, Cable One.
However, when it comes to profits, the local broadcasting and cable units are carrying the day. For the six-month period ended June 30, the cable division’s operating profits rolled in at slightly above $81 million, up 14% compared to the same period in 2012. Broadcasting operating profit jumped 11% to $83 million, backed by increased incremental advertising revenue and higher retransmission revenue – the money TV stations get from pay-TV operators for letting them carry their signals.
Looking ahead: Kaplan’s key role
In 2010, the Government Accountability Office issued a report on for-profit schools exposing their deceptive practices, such as charging higher fees compared with state colleges and spending less on teaching. Because for-profit universities get most of their tuition money from federal loans and grants, legislators demanded reforms. But, many industry players made a big fuss over the new rules attracting a constant barrage of negative press. Since the report came out, enrollment numbers have been going downhill, not just for Kaplan, but also for its direct peers.
Given the fact that the education unit makes up half of the company’s top line, there is a lot at stake. Kaplan reported operating income of $19.7 million for the first six months of 2013, an improvement from the $8.2 million loss in the first half of 2012, but a drop in the bucket compared to the $330 million it delivered in all of 2010. Amid low demand and campus shutdowns, student enrollment declined 8% year-over-year.
82-year-old global provider of educational services DeVry Inc. (NYSE:DV) wrapped up a rather bumpy fiscal year. For the 12-month period ended June 30, revenues dropped 5.2% to $1.96 billion while adjusted earnings came in at $2.86 a share following a 14.6% downtrend. New undergraduate enrollments at its flagship university took a nearly 25% nosedive for the July 2013 session alone.
Apollo Group Inc (NASDAQ:APOL), the owner of University of Phoenix, is also going down quite a rocky road. During the first nine months of fiscal-year 2013, net revenue plunged as much as 13% on a year-over-year basis, decimated by a 15% drop in average enrollment. Going forward, it expects to end the year with net revenue of $3.65 – $3.70 billion, notably lower than the $4.3 billion it racked up the prior year.
Kaplan, as well as the others, are implementing restructuring plans trying to combat losses and regain students’ trust. But, this sector’s public image is still quite marred, and renewed competition from nonprofit and state colleges, on top of tough regulations, is not helping, at all.
Final thoughts
As an imaginative entrepreneur and a long-term thinker, Bezos has a keen eye for business opportunities, sometimes hidden in the most controversial markets, and the stomach for potential pitfalls. It took Bezos seven years to make Amazon profitable, something that, back in 2001, seemed to be nothing but wishful thinking. Earlier this year, he invested in news website Business Insider. Apparently, he sees something in content. No matter what the outcome may be, at least he’ll get the chance to experiment.
For The Washington Post Company (NYSE:WPO), which will get a new name, shedding its newspaper assets is a weight off its shoulders. Not just that, but also the Grahams may use the extra cash to continue diversifying their portfolio and setting foot into new markets. Late last year, they bought a health care company and, just last month, a furnaces manufacturer – a move I couldn’t really understand. Now, it makes more sense.
The article A New Era for The Washington Post Company? originally appeared on Fool.com and is written by Fani Kelesidou.
Fani Kelesidou has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Fani is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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