New Media's Decline Is Accelerating, Not Slowing

May 11, 2017 12:46 PM ETGannett Co., Inc. (NEWM)20 Comments
Vince Martin profile picture
Vince Martin


  • NEWM's rollup of declining local newspapers seems dangerous - and it is.
  • Management is forecasting a return to overall revenue growth, but digital advertising is declining, and the company is reliant on price increases in circulation.
  • A double-digit dividend makes shorting a bit more difficult, but a leveraged, declining business has more than enough downside to compensate.

The story at New Media (NYSE:NEWM) is one of the strangers in the markets. First, it's a roll-up of local newspapers, a seemingly odd target, given the obviously secular decline in the space. NEWM pays a double-digit dividend, for reasons that aren't entirely clear: after distributing nearly $100 million over seven quarters, while talking up extensive acquisition opportunities in the space, the company executed a $120 million stock offering in November. This came at the same time NEWM management was talking up its undervalued stock - even citing a $25 price target - and to its credit, put its money where its collective mouth was. And, again, it's a rollup of local newspapers and using a strategy that its predecessor GateHouse Media rode straight into Chapter 11.

The irony is that an investor unfamiliar with the NEWM story might assume that it was essentially a "cigar butt" type of play: local newspapers could add value if they're a) acquired cheap enough and b) can contribute enough cash flow (either through existing business and/or synergies/cost cuts) to repay the acquisition cost in a matter of years. But New Media's version of the story is that organic revenue trends will improve, as digital revenue growth offsets ever-shrinking legacy print business.

I'm highly skeptical on that point, and Q1 results last month support that skepticism. I regret not shorting NEWM at $16, when I was dissuaded both by the dividend and the potential for improvement in 2017. But even at a lower price, NEWM looks like it's in big trouble. And, at some point, that's going to mean more downside for the stock.

This Is Not Working

Source: author from NEWM presentations

The chart above uses New Media's own figures given after the end of each quarter, which are pro forma for any acquisitions

This article was written by

Vince Martin profile picture
Overlooked Alpha launched April 2022 - subscribe at Some OA articles are also available here at Seeking Alpha.I've been contributing to Seeking Alpha and other investment websites since 2011, with a general (though far from rigid) focus on value over growth. I got my Series 7 and 63 back in 1999, and watched the dot-com bubble peak and then burst in real time at a small, tech-focused retail brokerage in NYC.

Disclosure: I am/we are short NEWM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long NEWM puts.

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