The rapidly evolving technology landscape is a discussion usually focused on the market’s biggest tech stocks. However, the way in which consumers receive and utilize media is affecting industries other than just the technology sector. In particular, the newspaper business is at a critical turning point.
The push for high-profile technology companies to capitalize on the trend towards mobile has been well-documented. Less so, however, is the turbulence surrounding America’s newspaper industry. Some of the country’s biggest publicly-traded newspapers face similar issues.
A troubled industry
The Washington Post Company (NYSE:WPO) and its investors might take solace in the fact that legendary investor Warren Buffett is among the company’s financial backers. Buffett has a famous proclivity for daily newspapers, having purchased 28 of them over the past couple years.
Despite stagnating profits and readership numbers that are heading in the wrong direction, Buffett maintains his belief in America’s daily newspapers. He recently defended his investment in The Washington Post Company (NYSE:WPO), claiming that he expects total annual returns from his newspaper investments to hover around 10% annually going forward.
Unfortunately for shareholders, The Washington Post Company (NYSE:WPO)’s recent operating performance paints a different picture. The company recently reported an 85% drop in first-quarter net income, attributed primarily to weakness in its core newspaper and education segments.
The company’s total revenue in its newspaper division dropped 4% because of lower ad sales at its print edition. In addition, it reported an operating loss of $34.5 million mainly due to severance costs.
The New York Times Company (NYSE:NYT) is in a similarly troubled position. Excluding severance costs and other special items, diluted earnings per share from continuing operations were $0.04 in the first quarter of 2013 compared with $0.05 in the first quarter of 2012, representing a 20% decline.
One positive note was the company’s progress in its mobile positioning. Paid digital subscriptions across the company totaled approximately 708,000 at quarter’s end, a 45% year-over-year increase from the end of the first quarter of 2012.
The New York Times Company (NYSE:NYT) had to face the reality of the declining newspaper industry by first slashing its dividend in 2008, then eliminating it entirely. The health of a company’s dividend is one of the best indicators of the firm’s financial strength, and The New York Times Company (NYSE:NYT)’s suspended payout is surely a bad sign.
Gannett Co., Inc. (NYSE:GCI) is the biggest publicly-traded newspaper stock of the three, holding a market capitalization in excess of $4 billion. Gannett Co., Inc. (NYSE:GCI) is a diversified publishing company, with more than 80 daily publications in the United States and internationally, including USA Today.
The company delivered 2% revenue growth for full-year 2012, but sales remain below 2010 levels. In addition, the increase in net revenue comes despite especially strong growth in digital revenue. Publishing advertising, which accounts for nearly half the company’s revenue, has declined for two years in a row and is a major drag on the company’s results.
On the bright side…
One positive note is that The Washington Post Company (NYSE:WPO) and Gannett Co., Inc. (NYSE:GCI) pay dividends to shareholders at levels that exceed the yield on the broader market.
The S&P 500 Index as a whole yields approximately 2% at current levels. Both these stocks have dividends that eclipse that: The Washington Post pays a 2.2% dividend, and Gannett Co., Inc. (NYSE:GCI) does its shareholders even better with a yield approaching 4%.
That being said, dividend yields ranging from 2% to 4% aren’t terribly difficult to find, so investors shouldn’t plow into these names just to chase yield.
Moreover, The New York Times Company (NYSE:NYT) has made measurable progress in developing its mobile footprint. The company reported strong paid digital subscription growth in the first quarter and will desperately need to expand on this going forward. Other newspapers, including The Washington Post Company (NYSE:WPO) and Gannett Co., Inc. (NYSE:GCI), will have to do the same.
Whether the newspaper industry in America is in structural decline remains to be seen. What remains true, however, is that print subscriptions are down, as more consumers ditch traditional print publications in favor of digital media. In turn, print advertising (and consequently, revenue) is down.
America’s publicly-traded newspaper stocks will have to find a way to effectively monetize online subscriptions if they want to avoid the doomed strategy of chasing bigger slices of a shrinking pie. Until that happens, investors would be wise to closely monitor the operating performance of these stocks, while remaining on the sidelines.
The article Are Newspapers Dead? originally appeared on Fool.com and is written by Robert Ciura.
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