Sector financial performance:

This company, which primarily owns and operates local daily newspaper, weekly newspaper, and websites to earn 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 local market newspaper of this company has been weak and declined in the past several years as indicated by its declining subscription volumes. While the decline in circulation volumes has been able to be offset by increased price it worsens this company’s advertising revenue, which has been declining fast due to local economic condition and business’s shifting to digital media (increased quickly).

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

Net revenue decreased 4.2%.

Same store advertising and marketing service revenue (excluding acquisition) decreased 10% attributable to decrease in print advertising volumes. Same store digital advertising increased 2.2% due to increase in digital retail advertising.

Same store subscription revenue decreased 0.4% due to decrease in circulation volume offset by higher subscription rate and price.

The fiscal 2017 compared with 2016

Net revenue decreased 7%.

Advertising and marketing service revenue decreased 10.6% attributable to decrease in print advertising volumes. Digital advertising increased 8% due to increase in digital retail advertising.

Subscription revenue decreased 0.6% due to decrease in circulation volume offset by higher price.

Fiscal 2016 compared with fiscal 2015

Net revenue decreased 5%.

Advertising and marketing service revenue decreased 9.4% attributable to decrease in print advertising volumes. Digital advertising increased 5.6% due to increase in digital retail advertising.

Subscription revenue decreased 0.2% due to decrease in circulation volume offset by higher price.

It’s operating margin decreased by about 100 basis points to around 15% since 2015 and cash flow down with it.

Stock performance

This stock currently has a stock price/cash flow ratio of 6.5. We think that its stock is being relatively fairly valued compared with GANNETT CO., INC.