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Weak Print Ad Dulls Newspaper Publishing Industry Outlook

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The Zacks Publishing - Newspapers industry consists of companies that provide news and information on print and digital platforms. Some of the industry participants also offer commercial printing, marketing and data services along with digital marketing solutions. The operations of these companies comprise daily and non-daily publications, mobile news and advertising, video products and other niche publications.

Let’s take a look at the industry’s three major themes:

  • Declining print readership and advertising revenues have gripped the U.S. newspaper publishing industry for long. Nevertheless, the industry participants are evolving from being pure news-content providers and advertisement platforms. Rapid digitization in the core areas of advertising, subscriptions and sales, printing, and distribution services has turned out to be a major source of revenues. Companies are now focusing on creating content for mobile devices, online advertising based on user experience and personalized content to lower their dependence on traditional advertising. Some companies are even providing rich media video advertising on their websites. They are also using data analytics and modeling to not only engage with the audience, but also provide targeted marketing services on behalf of local businesses.
     
  • Readers’ preference for accessing news online, mostly free, has made the industry’s print-advertising model increasingly redundant. As readers started thronging the Internet, advertisers followed suit, and so did the newspaper companies. This trend of advertising shifting from print is likely to accelerate. Trimmed print operations paved the way for online publications that led to the development of a pay-and-read model, as adopted by The New York Times Company (NYT - Free Report) . The approach backfired for a handful of newspaper companies, but some managed to make a mark in the digital subscription business by maintaining content exclusivity.
     
  • Newspaper publishing companies are strengthening their portfolio via alliances and buyouts. They are taking the consolidation route to create economies of scale, widen their reach and become an all-in-one destination for advertisers. However, such consolidations have not delivered the desired results in some cases. Another industry trend is that of segregation of broadcasting properties from print business to unlock value. Companies have also been offloading assets that bear no direct relation to core operations. The outcome of this approach is hinged on how effectively newspaper companies make the most of the freed-up resources to reach business-to-business and business-to-consumer markets.

The newspaper publishing industry is no longer restricted to print, as innovative technologies have altered the way news is offered and consumed. The alignment of the print and digital model has not been an overnight phenomenon. Newspaper companies have stayed abreast with technological advancements to reach their target audience more effectively. This dramatic shift to digitization also demands simplification of the operating structure.

Zacks Industry Rank Indicates Dismal Prospects

The Zacks Publishing - Newspapers industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #247, which places it in the bottom 1% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has decreased approximately 34.3%. The same for 2019 has declined 27.4% during the said period.

Stock Market Performance: Industry Vs. Broader Market

The Zacks Publishing - Newspapers industry has outdone both the broader Consumer Staples sector and the Zacks S&P 500 composite over the past year.

The industry has rallied 23.2% over this period compared with the S&P 500’s gain of 8.7% and the broader sector’s decline of 5.2%.

One-Year Price Performance



Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used to value publishing stocks, the industry is currently trading at 25.16X compared with the S&P 500’s 16.97X and the sector’s 18.50X.

Over the last five years, the industry has traded as high as 30.63X, as low as 12.07X and at the median of 19.58X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

 

Bottom Line

Evidently, soft print advertising revenues remain a major headwind. This has compelled the operators to critically evaluate the economic viability of their traditional print operations, with many deciding to exit the business altogether and solely focus on the digital format instead. Companies are turning more subscriber-oriented, adopting paywall strategies and new pricing techniques to generate more revenues.

None of the stocks in the Publishing - Newspapers space currently holds a Zacks Rank #1 (Strong Buy) or 2 (Buy). However, we are presenting one stock with a Zacks Rank #3 (Hold) that is well positioned to capitalize on the opportunities and another stock with a Zacks Rank #4 (Sell) that is struggling to keep pace with the changing industry landscape. You can see the complete list of today’s Zacks #1 Rank stocks here.

The McClatchy Company (MNI - Free Report) : The Zacks Consensus Estimate for the current-year bottom line has remained stable over the last seven days. This Zacks Rank #3 company provides news and advertising services in digital and print formats.
 
Price and Consensus: MNI

 


Gannett Co., Inc. (GCI - Free Report) : For this media and marketing solutions company, the Zacks Consensus Estimate for current-year earnings has decreased 14.9% over the last 30 days. This Zacks Rank #4 stock missed the Zacks Consensus Estimate for earnings in the last-reported quarter.

Price and Consensus: GCI

 
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