Once again New Media Investment Group CEO Michael Reed argued that his company’s stock is undervalued.
“We believe the dividend increase speaks to our optimism around the outlook for the company,” he told analysts Thursday on his third quarter earnings call. “Obviously I think our equity is undervalued given where the share price is today and think the strategy and what we have done is currently misunderstood.”
Wall Street was unmoved by that pitch from Reed, whose company owns the State Journal-Register, Peoria Journal Star, Pekin Daily Times and other Illinois newspapers through its GateHouse Media operation. Friday afternoon the stock plunged back toward $14 per share after briefly rising past $15.60. Remember, this was a stock that drew a $42 target price from one well-respected analyst when the company initially went public back in 2014.
The company’s game plan has been well-established. The price of newspaper properties keeps falling due to the collapse of print advertising revenues. One by one, smaller operators are getting out of the business. So New Media is able to swoop in and get them for good prices.
New Media then slashes operating costs at the acquired properties, stripping them down for maximum cash flow. Some of that cash is used to fund hefty dividends and some helps fund more acquisitions — which leads to more cost-cutting, more cash flow and more money for dividends and acquisitions.
This strategy has had a debilitating effect on five Illinois newspapers represented by the United Media Guild: The Peoria Journal Star, Pekin Daily Times, State-Journal Register, Rockford Register Star and Freeport Journal Standard. We have spent a lot of time talking face-to-face with readers, civic leaders and advertisers in those communities about what this New York-based company is doing to their newspapers.
Reed ran through the his playbook for analysts Thursday, offering no surprises. New Media still hopes to:
- Offset its ongoing circulation decline by jacking up prices and making diehard subscribers pay for special sections.
- Replace the loss of print advertising with more digital advertising.
- Keep buying properties at favorable prices to build total revenue and expand the reach of Propel Marketing.
- Build Propel into a bigger piece of the revenue pie.
- Invest more in the “business-to-business” properties that aren’t as vulnerable to print advertising decline.
That latter step is a wise choice, given the company’s history of accelerating the erosion of local newspapers. Revenues at those operations will continue diminishing as increased digital advertising fails to offset the losses on the print side.
It is worth nothing that GateHouse Media leadership, working under the New Media umbrella, finally improved the look and functionality of the previously dreadful newspaper websites. So there’s that.
Reed keeps promising to turn the corner and generate actual growth, but there is no sign of that at its properties — which limp along with smaller and smaller news-gathering operations and disillusioned sales forces, offering readers and advertisers less while charging them more.
Morale is worsening across the chain, prompting increased unionization. When newsrooms in an anti-labor state like Florida vote to join the Guild, you know employees have no faith in corporate management.
For now, anyway, the stock is paying nice dividends. The United Media Guild appreciates that, since we own New Media stock and can use that investment income to better serve our members.
But how long will that last? And what will become of the news-gathering operations and the communities they serve?