Sector financial performance:

This company, which primarily owns and operates newspaper and digital news 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 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 volume 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. This company has been able to raise its print newspaper rate to offset the decline in volume.

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

Net revenue decreased about 3% due to decrease in advertising revenue offset by increase in circulation revenue.

Net print advertising revenue decreased 12%; online advertising revenue decreased 31%.

Print subscription revenue increased 12% due to increase in price.  Digital circulation revenue increased 62%.

The fiscal 2017 compared with 2016

Net revenue decreased about 5% due to decrease in advertising revenue offset by increase in circulation revenue (rate).

Net print advertising revenue decreased 15%; online advertising revenue increased 0.1%.

Print subscription revenue increased 5% due to increase in price.  Digital circulation revenue increased 8.5%.

Fiscal 2016 compared with fiscal 2015

Net revenue decreased about 4% due to decrease in advertising revenue offset by increase in circulation revenue (rate).

Net print advertising revenue decreased 11%; online advertising revenue increased 1.1%.

Print subscription revenue increased 5% due to increase in price.  Digital circulation revenue increased 1.2%.

Its seems this company has managed to lower its costs in compensation and printing to offset the pressure, as a result of decrease in revenue in print newspaper related products, on margin.  It’s operating has been up to 2.4% in 2018.

Stock performance

This stock currently has a stock price/cash flow ratio of 68. We think that its stock is being relatively overvalued compared with New Media Investment Group Inc.