Jeff Bezos, CEO and founder of Amazon. Com, Inc. (AMZN) announced this week that he will purchase the Washington Post Company (WPO) for $250 million in cash. The move is the latest round in a rise in sales of printed media outlets, an industry that has shrunk considerably with the popularity of digital news outlets. Bezos follows in the footsteps of Warren Buffett who recently spent $334 million on 28 local newspapers, and John Henry,(Chairman of Fenway Sports Group) who purchased the Boston Globe from the New York Times Company (NYT).
So why are these multi-billionaires plowing cash into what is thought to be a dying industry? Well, it seems that these stocks perform well following the announcements of these divestitures. As more insiders invest in the industry, it may be worthwhile for even small-cap players to search for investment opportunities across the industry. The caveat is that the number of opportunities are becoming few and far between as companies continue to narrow the focus and get bought out.
One possible play in the small-cap arena is The McClatchy Company (MNI). The company offers newspapers that range from large dailies to non-dailies serving local communities. The larger papers the company owns include: The Kansas City Star, The Sacramento Bee, the Fort Worth Star-Telegram, The Raleigh News and Observer, The Miami Herald, and The Charlotte Observer. The company is well-poised to catch the tailwinds of the paradigm shift within the industry, which is changing rapidly. Total revenues in the first six months were down 3.7% to $603.9 million compared to $626.8 million in 2012. Advertising revenues in the 2012 period totaled $404.8 million, down 6.4%, but circulation revenues were $174.3 million, up 3.0%. Digital subscription and digital only advertising were also up for the period. MNI has a market cap of $249 million and trades attractively in the range of $2.88. A high Beta of 3.29 translates into higher risk and its thinly-traded status on the market adds more volatility, but if this company can capitalize on its digital platform, the risk-reward metric should skew towards reward. Another thought here is that this company might be a buyout candidate if it cannot keep up with digital media, even though it has entered the venue. Either way, it's worth consideration.
A small-cap media print company that has posted gains this year is Lee Enterprises, Incorporated (LEE). The company has 47 daily newspapers with joint ventures in four others, over 300 weekly newspapers, and specialty publications in 23 states. Among Lee's holdings are Pulitzer Inc. and the St Louis Post Dispatch. At the end of July, the company reported that earnings for its third fiscal quarter ended June 30, 2013, totaled $0.03 per diluted common share, compared with a loss of $0.03 cents a year ago. Adjusted earnings per diluted common share totaled $0.06, compared with $0.03 a year ago. Total digital revenue for the quarter totaled $19.9 million, a healthy increase of 4.9% from a year ago. Lee has a market cap of $188 million and trades in the $2.88 to $2.99. Again, its small-cap status and Beta of 2.62 lends this media print company to higher risks for investors, but it is capitalizing on its digital venues and appears to be on a relatively stable roll right now.
As Gordon Gekko so succinctly put it, "The most valuable commodity is information." Bezos and Buffett seem to think Gekko was right. The bottom line is that these companies deal in disseminating information to millions of readers across the country and investing in any of them could a little add muscle to your small-cap portfolio. It's surely worth looking into.