With an improvement in the economic environment, the buzz about advertisers returning to the market is gaining ground. Gannett Co. Inc. (NYSE:GCI), the diversified media conglomerate, is expected to benefit from positive trends that are emerging in both print and digital advertising with advertisers’ spending gaining momentum.
Gannett's fourth-quarter 2010 total revenue grew marginally by 0.4% to $1,461.6 million from the prior-year quarter, aided by strengthening economies and advertising gains across Broadcasting and Digital segments.
Although the quarter’s revenue fell short of the Zacks Consensus Estimate of $1,473 million, it showed an improvement over previously reported quarters. Revenue remained flat in the third quarter, and had registered a decline of 1.6% and 4.1% in the second and first quarters, respectively.
Publishing advertising revenue fell 5.9% to $722.3 million from the year-ago quarter but increased sequentially by a sharp 11.7%. Encouragingly, the broadcasting division is strong and benefits from significant political advertising. Gannett, the publisher of 82 U.S. dailies, said that total broadcasting revenue surged 27.1% to $232.8 million during the fourth quarter.
The significant potential risk is the company's high dependence on advertising revenue, which is influenced by the health of the economy. To mitigate this, Gannett is adding diverse revenue streams to hedge against economic cycles.
The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. News International, the subsidiary of News Corporation (NASDAQ:NWSA) started charging readers for the online content of The Times of London and Sunday Times of London from June 2010.
The New York Times Company (NYSE:NYT), another diversified media conglomerate, is transmuting its business model by adding diverse revenue streams, which include a pay-and-read model for NYTimes.com. It also plans to launch a paid subscription website, BostonGlobe.com in 2011.
The NYTimes.com subscription based model is slated for launch in the first quarter of 2011. It also specified that subscribers to the New York Times’ print version will be able to access online content or articles without shelling out additional charges.
However, given the slow economic resurgence and soft advertising spending environment, we maintain our long-term Neutral rating on Gannett with a price target of $16.00. Moreover, the Zacks #3 Rank, which translates into a short-term Hold recommendation, correlates with our long-term view.