In 2005, the company did $3.55 billion in revenue. The education segment was $1.4 billion of that, and grew at 24% compared to the previous year. Operating income from the education business was up 30%. In the other lines of business, which include newspapers, magazines, television and cable, operating income dropped.
One of the good things about the education business at The Washington Post Company is that it is diverse. It includes an online post high school business, a financial training company for accountants based in London, and training for real estate, securities industry jobs, and insurance. The business is international, and enrollment in higher education courses, mostly online, rose from 58,000 in 2004 to almost 70,000 at the end of 2005.
Investors don't like the newspaper business now. And, that's fair. The role of the newspaper is being eaten alive by internet news and online classifieds. McClatchy (MNI) is near its 52-week low and trades a 2.1 times sales. Things at the Journal Register (JRC) are even worse. It is also near its 52-week low and has a price-to-revenue ratio of less than one.
Things are even bad an newspaper behemoth Gannett. It trades at about two times sales, even as the leader in the industry. And, of course, investors in Knight-Ridder (KRI) are trying to break it into pieces and sell them off. This has at least brought its price up a little.
Even with the education business The Washington Post commands no premium, and it should. It trades at two time revenues and has a forward looking PE of 18. The education business makes it worth more. Take a look at the recently maligned Apollo Group (NASD: APOL). Its price to sales ratio is 3.75, and it has been pounded by the press for losing its CEO and had its EPS estimates lowered by none other than Morgan Stanley. Does it have a good business? Almost certainly, yes. Profitable and growing.
Education Management Systems (EDMC) was just bought by Goldman Sachs and Providence Equity Partners. Smart money. And they made the purchase with a forward looking PE of 23. They must love the business.
Granted, continuing education, including the online portion of the business, is a competitive field. But, for the time being, it is growing fast, and the players with the lead position are likely to keep their leads.
Should The Washington Post Company be in the television business anymore, or cable, for that matter? Maybe not. But, they certainly aren't a newspaper company anymore.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the President of Switchboard.com when it was the 10th most visited site in the world, according to MediaMetrix. He has also been chief executive of On2 Technologies, Inc. He does not own securities in any of the companies mentioned.