Sector financial performance:

This company, which primarily owns and operates diversified media company and earns from advertising and circulation in its print and digital news products and book publishing business, has been grouped into newspaper sector in newspaper industry.

It seems that the demand for print advertising of companies in this sector has been significantly decreasing in the past several years as indicated by the averaged decrease in same store print advertising revenue (average 12-19% annually in 2016-2018). While digital advertising revenue has increased, the average 3-4% growth in digital advertising revenue of companies in this sector has been far from enough to offset the declining revenue in their print advertising. The total advertising revenue has thus decreased by about annual 7-13% in the past three years. With the decline in their subscription/circulation revenue (4-6% annually- included increase in digital circulation), we still see an average annual decline of 4-6% in total revenue of those companies including impact of acquisitions).

Declining revenue has put huge pressure on companies’ margins. However, benefiting from costs cutting in employee compensation and improved margin in print circulation as a result of lower printing costs and increased price, companies improved slightly their operating margin while shrinking revenue from circulation and advertising. The averaged operating is about 5.5% in 2018 up from about 5% of 2015.

The typical enterprise price/EBI is 22 (11-35).

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Company performance:

It seems that the demand for print advertising of this company has been continuingly decreasing, which has been the major reason for the decrease in its advertising revenue the past several years, while the demand seems to have partially shifted to online advertising as indicated by the increase in its online advertising during the same period of time. Subscription has also continued to decline as well in the two from the past three years while it increased in 2018.

The first nine months of fiscal 2018 compared with the same period of 2017

Net revenue increased about 4%.

Net advertising revenue decreased 3%.

Subscription revenue increased 6%.

The fiscal 2017 compared with 2016

Net revenue decreased about 2%.

Net advertising revenue decreased 5%.

Subscription revenue decreased 4%.

Fiscal 2016 compared with fiscal 2015

Net revenue decreased about 3%.

Net advertising revenue decreased 10%.

Subscription revenue decreased 1%.

It seems this company has managed to lower its costs in SG&A to improve margin.  It’s operating has been up to about 7% in 2018.

Stock performance

This stock currently has a stock price/sales ratio of 1.1. We think that its stock is being relatively slightly overvalued compared with its peer A. H. Belo Corporation, which has ration of 0.4, while it has potential to increase its earnings from its equity investment (loss currently).