That means if you want to invest in publishers, you need to go with a firm that has a market niche in its print segment. It has to be the type of company that offers information that you can only get from its publications. Only one of the following firms meet that standard.
New Corp. is weakening with social trends
News Corp (NASDAQ:NWSA) controls two business segments, one in entertainment (consisting of 21st Century Fox, among others) and one in the news business (consisting of the Wall Street Journal, for example). Both the entertainment and the news segments are troubled. On one hand, an increasing number of people are turning off their TVs and using their computers to download and stream media for free. On the other, people are turning to web for information and damaging print publication profits by doing so.
As a former newspaper editor, I know firsthand that the industry is dying. Small community newspapers will survive due to the fact that local print is the only place to receive much of the news that townsfolk are craving, but News Corp (NASDAQ:NWSA) is mostly invested in larger news media. It should be noted that while the company has some assets in newspapers such as the Wall Street Journal, it is also heavily invested in Fox Sports Australia which isn’t as negatively affected by social trends.
While the company posted a loss last year, analysts believe that the firm will earn $0.55 per share this year and $0.52 per share next. If that proves true and the company is able to earn a profit, its share price will soar. Be wary of the long-term implications of buying a company heavily invested in news media and TV- and film-based entertainment, however.
Gannett improves operations, but has a long way to go
Gannett Co., Inc. (NYSE:GCI) looks to be in a better position than New Corp. since the company acquired Belo. The purchase represents further diversification away from a heavy investment in publishing while increasing the exposure to broadcast. I see advertisers preferring Internet ads over television, however, due to more people turning off their TVs and turning on their computers.
Management at Gannett Co., Inc. (NYSE:GCI) anticipate the purchase could generate $175 through synergies by 2016. Part of that anticipated synergy comes from the concept that the company will have higher bargaining powers with the content providers due to its newfound size, and this could lower royalty payments while increasing advertising rates.
Analysts don’t expect those synergies to take effect right away, however, and neither do I. Revenue is expected to fall 2.3% this year before gaining 4.9% next year. Those estimates are reflected in the earnings per share forecast, which is expected to drop 8% this year before climbing by 19% next year.
Reed Elsevier is a diamond in the rough
Reed Elsevier NV (ADR) (NYSE:ENL) is largely invested in publishing, but the firm looks to have more solid footing than News Corp (NASDAQ:NWSA) and Gannett Co., Inc. (NYSE:GCI) due to the niches in which it operates. These include science, medical and technology publishing units. Due to the specific nature of the information that is carried in these units, I think that advertisers relevant to those areas will still want to buy ads with the company due to the readers that will keep coming back for credible information.
While the medical publications essentially have a monopoly through its “Gray’s Anatomy” medical reference books, the legal information the company provides does have a competitor in Thomson Reuters. Together the companies have an estimate 80% market share in that segment, providing some level of security.
Analysts also like this economic moat. They anticipate that the company will increase its earnings per share by 67.5% this year and 9.5% next year. However, only one analysts is covering this company according to Yahoo! Finance. This year’s expectation is lofty, and if the company posts substantial gains but misses estimates then look out below.
Hope is still alive
If publishers are able to get a lock on earning online revenue, these operations could turn around. I don’t believe there is a chance that the firms will achieve the type of revenue they accomplished when print publishers were more relevant, however. This is due to the extreme ease with which competitors can attract advertising revenue online. The firms are in a rebuilding phase, and they will need to find a way to develop their brands online — but without being able to create an economic moat on that platform, the chances are slim.
The article One Publisher to Buy and Two to Sell originally appeared on Fool.com and is written by Phillip Woolgar.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
