Fit To Own

NYT @ $ 5

New York, BizBlog100@blogspot.com

I added a starter position in New York Times (NYT), on the theory that the relentless criticism by the New York Post is both right and wrong. The depiction of a one-time preening queen, now local harlot, has zing to it.

The announced consolidation of certain weekday features is maybe a welcome sign that the Company is sincere is pursuing cost discipline. While probably not a root cause of recession, I have long thought the lifestyle sections and ads were indulgent. The weekly real estate broker catalogs were/are a particularly egregious waste of fiber.

Management is trying to apply financial discipline to the newsroom salaries, while also making demands on print union employees to share the sacrifice.

But the union is not the problem. NYT earns a 45-50% gross profit, ample margin to maintain production and distribution cost structure.

The earnings problem stems from a 25% decline in print advertising and 1% circulation loss. Another negative was the absolute decline in electronic revenue, despite higher profits from pay per click programs. And the sales problem is especially severe in Boston. Go figure.

Apparently the Company is giving no guidance about future revenue goals, albeit confirming that 2Q09 sales are still slow. But advertising will assuredly recover, possibly for this year’s Christmas (comparisons are easy; remember $140 oil?)

Reports from Seattle, San Francisco and especially Chicago have conditioned investors to discount newspaper stocks. Fair enough! But NYT is hovering at a historic low and New York is not Seattle. Debt, at about $1 billion, compares favorably to the $11 billion loaded on Tribune Company. The New York Times has brand power and a vibrant local and professional constituency.

I am amused to calculate that Yahoo has a market equity value of $20 billion, or 3X revenue. NYT’s ABOUT.com has revenue annualizing just above $100 mill. This implies that the electronic component of NYT might be valued at half the total value of NYT ---which makes the Company a very low priced business.

Family control is protected by 2-class voting structure. While this likely suppresses the prospect of a hostile campaign, it does not address the needs and fears of the now dividend-less Sulzberger clan.

This is a straw hats in winter type of investment. Newspaper advertising will assuredly recover. But, even if the Post is correct and Pinch is punched out, a strategic valuation will be well in excess of the current sub-$700 million market cap.

BizProf100
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