Scripps Provides 2006 Guidance for Shopzilla (SSP)

Scripps (ticker: SSP) took a hit Monday on news that the company lowered its Q4 estimates because of weakness at Shop At Home (no reason given) and Florida newspapers and TV stations (hurricane season). The company is also providing guidance for 2006:

According to Scripps, “[Shop At Home], which is continuing to define its television retailing strategy, expects segment losses to be less than $20 million in 2006. The company does not expect Shop At Home to be profitable in the fourth quarter 2006, as had been previously forecast. The company is in the process of assessing Shop At Home’s operations and retail strategies in conjunction with its hiring in November of Jim Held as the subsidiary’s president and chairman.”

Maybe Shop At Home should talk to Shopzilla which “is expected to generate $50 million to $55 million in segment profit” and whose “Operating results are exceeding our expectations in the fourth quarter.”

Ok, this is where all those economics classes should pay off, but bear with me as I do some math.

In Q1 2005, Shopzilla had revenue of $26.9m
In Q2 2005, Shopzilla earned $7.6m on revenue of $29.5m - a profit margin of 25.8%
In Q3 2005, Shopzilla earned $7.3m on revenue of $35.2m - a profit margin of 20.7%
I estimate Q4 revenue to be at least 50% higher than Q3 (Shopping.com saw 60% Q3 to Q4 revenue growth in 2002 and 50% revenue growth for the same period in 2003), so let's say $52.8m in revenue.

That's total estimated revenue of $144.4m in 2005. Applying a 23.3% profit margin to the entire year (average of the profit margins in Q2 and Q3) we'd get earnings of approximately $33.6m for 2005. However, that 23.3% average profit margin is probably a bit low because Shopzilla should have better profit margins with the higher sales in Q4 for 2 reasons: 1) All their fixed costs - including salaries, health benefits, general administrative, and amortization of their software and technology – don’t go up and 2) Shopzilla (like most comparison shopping sites) increased its per click fees going into the holiday season. Because of this, I'm going to increase Shopzilla’s Q4 estimated profit margin to 27% which results in $14.3m in earnings for Q4 and $35.4m in earnings for all of 2005.

The numbers shaded dark purple are actuals. The numbers shaded light purple are estimates:

Taking the low-end of Scripps' estimated 2006 segment profit for Shopzilla of $50m, that means Shopzilla’s earnings are expected to grow approximately 41% in 2006.

Related:

• Other articles about Scripps.
• Other articles about Diversified Media Stocks.
• The complete list of media stocks covered by The Media Stock Blog.
• A list of full conference call transcripts available on the Seeking Alpha Network.

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