Monday, January 04, 2010

News-stock surge: Boom or dead-cat bounce?

First of two parts. The second part is here.

Although last year was the worst in the history of the newspaper industry, stock prices on average doubled for the publicly traded publishing companies fortunate enough to avoid bankruptcy.

The boom could be interpreted as a vote of confidence from Wall Street in the battered industry. Or, it could be a dead-cat bounce, an indelicate expression investors use to describe a brief uptick in the long-term decline of a group of shares. Only time will tell.

Dead-cat or otherwise, the bounce was real in 2009, even as newspapers struggled through a terrifying downturn that likely erased a quarter or more of their ad revenues in a single 12-month period.

The average rise in publishing shares last year was 8.5 times better than the performance of the stock market as a whole. If you back out the total loss in value of the two publicly held publishers that went bankrupt in 2009, the shares of the surviving companies increased by an average of 200.6%.

But don’t uncork the champagne just yet. When you compare the value of the publishing shares at the end of 2009 with where they stood four years earlier, you will find that they have shed, on average, nearly three-quarters of their value since 2005, the halcyon year for modern newspapering.

We’ll explore tomorrow the factors fueling last year’s improbable rally in publishing shares. Today, let’s look at the numbers.

The shares of Lee Enterprises led the advance in 2009, surging 746.3% to close at $3.47 after wilting to an all-time low of 24 cents earlier in the year. As detailed in the table below, the shares of GateHouse Media quadrupled after hitting unprecedented lows in the last 12 months, with triple-digit gains at McClatchy and Media General not far behind.

Apart from the shares of Journal Register and the Sun-Times Media Group, which each lost all their value after being discharged from bankruptcy in 2009, every publicly traded newspaper issue but the Washington Post Co. handily beat the 23.5% increase last year in the Standard & Poor’s index of 500 stocks.

But let’s not get carried away. As strong as newspaper shares were in 2009, they have a long way to go to get back to where they were as recently as Dec. 30, 2005, the year the industry reported all-time record advertising sales of $49.4 billion.

While the final ad figures for 2009 won’t be out for a few more weeks, the industry’s performance in the first nine months of last year suggests sales will amount to approximately $28 billion for all of 2009. That would be some 26% below the $37.8 billion in print and online ad sales recorded in 2008.

At yearend 2009, the average value of the 10 newspaper issues traded continuously over the last four years was down by 72.4% from where they stood on Dec. 31, 2005. Here are the details:

:: As the result of their bankruptcies in 2009, the shares of Journal Register and Sun-Times Media Group lost essentially 100% of the value they each represented at the end of 2005. (In filing for Chapter 11, the publishers joined five privately owned companies, including Tribune Co., Philadelphia Newspapers, Minneapolis Star Tribune, Freedom Communications and Heartland Publications.)

:: The shares of McClatchy, which increased 342.5% in 2009 to close at $3.54 apiece, remained 93.9% below the $58.51 they commanded at the end of 2005.

:: Although Lee staged the best recovery in 2009 by rising 746.3% to $3.47, its shares were 90.4% lower than the $36.00 they fetched at yearend 2005.

:: Media General, which climbed 348.0% to close 2009 at $7.84, was worth 84.5% less than its $49.60 value at the end of 2005.

:: Gannett, which gained 85.6% in 2009 to close at $14.85, was valued at $54.31 at the end of 2005, reflecting a 72.7% decline.

:: Journal Communications, which gained 58.8.% last year to close at $3.89, is down 71.5% from $13.64 at the end of 2005.

:: The Washington Post Co. rose 12.6% in 2009 to close at $439.60, leaving it worth 55.3% less than its final price of $757.15 in 2005.

:: The New York Times Co., which advanced 68.6% in 2009 to close at $12.36, is 51.9% lower than the final tick of $25.71 in 2005.

The only company maintaining a semblance of its value in the last four years was News Corp., whose shares rose 66.0% in 2009 to close at $15.90, or 4.3% below where they stood in 2005.

The market was no kinder to newcomer issues than it was to those who have been around since 20o5.

GateHouse Media, which went public at $18.65 a share in 2007, may have soared 400.0% last year, but its stock was still worth only 20 cents, or 98.9% less than its initial value.

A.H. Belo, which spun off from Belo Corp. in 2008, rose 164.2% in 2009 to $5.76, but that was 55.3% less than where it began trading as a standalone stock. E.W. Scripps, another 2008 spinoff, rose 214.9% last year to $6.96, but that was 21.3% short of its debut value.

The continuing deep disparity between the former and current value of newspaper stocks suggests that investors are far from comfortable that the industry has the capability to reclaim the growth and succulent profits that made it a Wall Street favorite in the past.

But the run-up in newspaper shares in 2009 signals that at least some bottom-fishing investors see brighter prospects for a business that many others gave up for dead. Tomorrow, we’ll take a look at what got them jazzed about newspapers.

Next: What fueled the news-stock rally


Blogger Howard said...

How many times have you written that the news world has changed and will never again reflect the past, Alan?

Given that, how meaningful is it to compare stock prices today to those three, five or 10 years ago? I mean, so what?

That "value" -- as it existed on Wall Street -- is never coming back in anything like prior volume. The news here is that value remains in what many people have long written off as a dead industry. The value is even able to grow modestly as the companies learn to navigate the new landscape.'

Those who define success as return to the stock values of a monopoly age can claim to be right in all their apocalyptic predictions. But it's a bullshit criterion.

8:04 AM  
Blogger Jim said...

It's especially meaningful to shareholders like me. Excellent analysis, Alan!

8:56 AM  
Anonymous Jeffrey Dvorkin said...

More interesting I think would be to analyze what is the average rate of return for media organizations as a percentage of their annual business. In the good old days of 2005, the average American newspaper had a rate of return of 13%. In those days, Big Pharma was "only" making 11%. Yet as shareholder satisfaction increasingly demanded more and more, the ability of news organizations to cover the news declined to where we are now. Anyone have an idea what that percentage was in 2009?

7:31 PM  
Blogger Numbersguy said...

I suggest the Washington Post Company be removed from the list of newspaper companies. Here's why.

WPO,thru three quarters of 2009 as reported in its most recent 10-Q filing, showed newspaper revenue was 17% of total operating revenue; the newspaper operating loss was $166.7 million while the other operating segments generated $214.5 million.

In summary three quarters of 2009 (and three quarters of 2008) show newspaper operations to be a relatively small part of WPO.

I suggest WPO stock price is not driven by newspaper ops.

9:46 PM  

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