The New York Times Company (NYSE:NYT) has done a great job in recent years of selling off its non-core assets in order to focus on maximizing the core New York Times brand all around the world. However, over the past month or so, shares of the company have begun to look a little too spiky, and I’m a bit concerned. Since early February, shares have popped 22% from the $8.20 level to right around $10. Has something changed to warrant such a jump, or is The New York Times Company (NYSE:NYT) just moving too far too fast, a victim of the recent market rally?
The “New” New York Times?
Over the past couple of years, New York Times has successfully shifted to a business model in which it charges for content on its website, NYTimes.com. Paid advertising, particularly in print media, has been in a secular decline for some time now, and the company is trying to rely less and less on advertising revenues to sustain it.
They have done a great job of increasing digital revenues, which represented just 12% of the company’s total in 2006 and have grown to double that percentage today. While this is certainly a good transition, overall revenues have been declining for some time (see chart below) and have not shown signs of stabilizing just yet.
What to Do Instead
For those who agree with me that The New York Times Company (NYSE:NYT) is a good company, but a little too expensive, let’s take a quick look at some alternatives. I do believe that the news companies who successfully make the transition to the digital age, and mobile ads and content in particular, will flourish for decades to come. I’d like to look at two companies that have similar business models to NYT, The Washington Post Company (NYSE:WPO) and Gannett Co., Inc. (NYSE:GCI), as well as a larger, more diversified company, News Corp (NASDAQ:NWS).
The Washington Post Company
I love Washington Post as a company, however they have had just as much of a jump in price as New York Times over the past few months. What most investors don’t realize, though, is that the newspaper division only accounts for 15% of the company’s revenues. The majority (59%) is a product of Kaplan (yes, the education company), which is a wholly-owned subsidiary of The Washington Post Company (NYSE:WPO). So, Kaplan is a good alternative if you’re bullish on the need for educational services such as test prep and career programs and still want news exposure. Making the company even more attractive is the fact that Berkshire Hathaway Inc. (NYSE:BRK.B) believes in it, with a 23% stake.
Gannett Inc.
Gannett is the largest newspaper publisher in the U.S., with about 100 daily newspapers (including USA Today, the highest selling newspaper in the country) as well as 500 non-daily publications. Although the company has taken measures to emphasize its broadcasting segment, in my opinion the company is still far too dependent on print advertising revenues, which I foresee declining for the next several years at least. However, at just 10.3 times forward earnings, and with a nice dividend payout of 3.7%, Gannett may be worth taking a chance on for adventurous investors.
News Corp
News Corp is one of the largest media and entertainment conglomerates in the world. While the company does publish some very well-respected newspapers (the Wall Street Journal and New York Post), the majority of News Corp’s revenues come from their Fox film studio and broadcasting network as well as their HarperCollins book publishing business.
Sometime during 2013, the company hopes to complete the separation of its publishing and media and entertainment businesses into two separate publicly traded companies. I see this as a major positive catalyst for investors, assuming it happens as planned. Although News Corp trades at a relatively high valuation of 17.3 times forward earnings, analysts are expecting News Corp’s earnings to rise at a 16% annual rate going forward, making this a nice growth play.
The Bottom Line
To reiterate my point: I love The New York Times Company (NYSE:NYT) as a company. However, until they can show that revenues are indeed stabilizing and that the new direction of their business is sustainable over the long term, I am hesitant to endorse the company as an investment. As an alternative, I prefer either The Washington Post Company (NYSE:WPO) or News Corp because of their exposure to alternative businesses, and the fact that their revenues are on an uptrend.
The article This Media Company Is Too Risky, Buy These Alternatives Instead originally appeared on Fool.com and is written by Matthew Frankel.
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