Sector financial performance:

This company, which primarily owns and operates “The Dallas Morning News” and digital platform and earns revenue by advertising and marketing service and subscriptions, 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 newspaper-based advertising of this company has been significantly decreasing in the past several years. While the decline in circulation volumes has been offset by increased price, revenue from newspaper circulation has decreased largely during the same period.  Revenue from digital content for marketing service seems to be increasing.

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

Net revenue decreased about 18%.

Net advertising and marketing service revenue decreased 27% attributable to decrease of 27% in newspaper advertising.

Subscription revenue decreased 7.4% due to decrease in circulation volume offset by higher subscription rate and price.

The fiscal 2017 compared with 2016

Net revenue decreased about 6%.

Net advertising and marketing service revenue decreased 4.7% attributable to decrease of 8% in newspaper advertising.

Subscription revenue decreased 3.4% due to decrease in circulation volume offset by higher subscription rate and price.

Fiscal 2016 compared with fiscal 2015

Net revenue decreased about 9%.

Net advertising and marketing service revenue decreased 4% attributable to decrease of 12% in newspaper advertising.

Subscription revenue decreased 4.7% due to decrease in circulation volume offset by higher subscription rate and price.

It’s operating margin was improved (still loss) to about -3.5% since 2015 due to significantly costs saving of employees’ compensation.

Stock performance

This stock currently has a stock price/sales ratio of 0.4. We think that its stock is being relatively undervalued compared with its peer-NEWS CORPORATION, which has a ratio of 1.1.