GCI GANNETT CO., INC.
Sector financial performance:
This company, which primarily owns and operates “USA today” and other local newspaper and digital platform and a marketing solution business (search engine) and earns revenue by advertising and marketing service, search engine 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).
It seems that the demand for print newspaper-based advertising of this company has been significantly decreasing ( more than 10% annually) in 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. Print newspaper subscription has also continued to decline as well in the past three years while digital subscription has increased for most of time during the this period of time.
The first three months of fiscal 2018 compared with the same period of 2017
Net revenue decreased about 7%.
Net advertising revenue decreased 10% attributable to decrease of 17% in newspaper advertising offset by increase of 7% in online advertising.
Subscription revenue decreased 6% due to decrease of 11% in print circulation revenue offset by increase of 15% in digital circulation revenue.
Search engine revenue increased 24% primarily due to increase of 21% in advertising revenue.
The fiscal 2017 compared with 2016
Net revenue increased about 3% due to acquisition online engine business.
Net advertising revenue decreased 7% attributable to decrease of 13% in print advertising offset by increase of 5% in online advertising.
Subscription organic revenue decreased 7% due to decrease of 5% in print circulation revenue and decrease of 17% in digital circulation revenue.
Fiscal 2016 compared with fiscal 2015
Net revenue increased about 6% (including acquisition).
Net advertising revenue was flat attributable to decrease of 13% in same store print advertising revenue offset by increase of 7% in same store online advertising revenue.
Subscription organic revenue decreased 4% due to decrease of 14% in digital circulation revenue. The print subscription revenue was flat.
The growth in net revenue of this company in the past three years has been mainly due to acquisition of new search engine and local newspapers. The same store revenue in core print advertising and circulation seems to be hurting its margins. It’s operating went down to about 5% from about 7.5% since 2015.
This stock currently has a stock price/cash flow ratio of 14. We think that its stock is being relatively fairly valued compared with LEE ENTERPRISES, INCORPORATED
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