Hear Ye! Hear Ye! Read All About It!

04/04/2013 10:15 am EST


George Putnam

Editor, The Turnaround Letter

Like Mark Twain said, “The reports of my death have been greatly exaggerated”, and that holds true for this newspaper publisher, also, says George Putnam of the Turnaround Letter.

First published in 1851, the New York Times (NYT) is one of the premier newspapers in the world.

Over the years, the company acquired other newspaper chains and launched other ventures. Like most newspaper publishers, the Times has been hurt by the explosion in digital media over the last couple of decades.

Revenues peaked at about $3.4 billion in 2005, and the stock topped out at $53 a year earlier. Both have been in a pretty steady decline since.

The company has one of the strongest brands in news media, perhaps in all media, and that is a key feature that we like to see in a turnaround candidate. Management is working hard to transition the brand from a purely print product to a digital presence, and recent results indicate that they are succeeding.

Paid digital subscriptions rose by 13% in the latest quarter to 668,000, helping fuel a 10% growth in full-year circulation revenues. This indicates that even in the current digital age, people are willing to pay for high-quality journalism.

Management is doing something else we like to see—refocusing on the company’s core business. The Times has been divesting non-core properties, including selling its regional newspapers and its About.com subsidiary in 2012. The company recently announced its intention to sell the Boston Globe newspaper and other regional papers.

The Times has one additional thing we like to see in a turnaround: New top management. Mark Thompson took over as CEO last August. Since he comes from a different country (the UK) and from a different medium (he was director-general of the BBC), he is likely to bring fresh ideas to The Times.

Despite the strength in circulation, advertising remains a challenge. Ad revenues declined by 5.9% in 2012. However, most of the declines were on the print side, and so the growing online circulation may give the company the opportunity to boost digital ad revenues.

The Times has significantly improved its balance sheet in recent years. Long-term debt has been reduced from almost $1 billion at the end of 2010 to $690 million at the end of 2012. Cash is up from $36 million at the end of 2009 to $955 million at 2012 year-end, and ongoing cash flow remains strong. This gives management plenty of resources to work with as it reshapes the business.

We’re not the only one who likes the company. Mexican billionaire Carlos Slim, who is reputed to be the richest man in the world, has acquired 17% of the outstanding Class A stock over the last few years. It is also interesting to note that another very savvy investor, Warren Buffett, has been buying newspaper properties recently.

There are still uncertainties about whether any “old” media company can thrive in the digital age, but we believe that the New York Times is in a very strong position to do so. Moreover, we think the current stock price is a very attractive entry point for such a strong franchise.

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