Stock Report - Scripps, The Future of Shopzilla

| About: The E.W. (SSP)
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Scripps (NYSE:SSP), owner of Shopzilla, announced preliminary earnings Thursday morning:

Q4 2007 revenue for Scripps Interactive (Shopzilla and uSwitch) was $79.8m.
Q4 2006 revenue for Scripps Interactive (Shopzilla and uSwitch) was $86.6m.

Q4 2007 segment profit for Scripps Interactive (Shopzilla and uSwitch) was $25.1m.
Q4 2006 segment profit for Scripps Interactive (Shopzilla and uSwitch) was $28.3m.

According to the release, for the full year (2007), at Scripps Interactive, “Revenue was $256 million compared with $271 million in 2006. Segment profit was $39.7 million compared with $67.7 million in the previous year.”

Obviously these numbers aren’t going the direction Scripps was hoping for when it acquired Shopzilla and uSwitch. So is Shopzilla crumbling or is it uSwitch? Seems to be uSwitch.

Scripps said “The decline in Interactive Media revenue and segment profit during the fourth quarter was attributable solely to reduced online energy switching activity at uSwitch. Revenue and profitability improved year-over-year during the fourth quarter at Shopzilla.”

Scripps also said they will take a “charge against earnings for impairment of goodwill and other intangible assets related to losses and challenging business conditions at the company’s uSwitch subsidiary in the United Kingdom.”

Early in the 4th quarter of 2007, after Scripps announced that it was spinning out its faster growing segments (Interactive, National Cable Networks) a number of sources said that Scripps was shopping Shopzilla around. These rumors started after Scripps CEO Ken Lowe said “As far as Shopzilla and uSwitch, I think it gives us an opportunity to look a lot harder at those businesses and how they fit overall into our interactive strategy.” (Red Herring)

I never commented on the Shopzilla sale rumor as I didn’t think it would happen with the holiday season heating up. And now? If Shopzilla had tanked in the 4th quarter, I think it would have been over for Shopzilla. Lowe’s comments this morning, attributing the rough numbers from Interactive to uSwitch, seem to indicate that everything is at least ok at the shopping engine. It’ll be interesting to hear what details Scripps reveals about Shopzilla and uSwitch in the earnings call this morning.

In the long run, I think that Shopzilla can be an extremely attractive property for Scripps. Search is huge and the product search game is still being played out, with no clear winners. It would be premature for Scripps to sell off Shopzilla.

I think we’ll finally see some creative integration of Shopzilla into Scripps’ other properties in 2008. At the same time, Shopzilla will continue to struggle to break free of its PPC addiction and become a destination rather than a quick stop along the purchase path with no real lifetime value beyond a single session.

I’ll hedge my bets a bit, though, and say that if Scripps finds a buyer for uSwitch, it might just decide to offload Shopzilla as well. Scripps’ acquisition of Recipezaar was bundled under the Scripps Network brand, not Interactive. According to Paid Content, Ken Lowe had this to say of the acquisition: “Recipezaar, a $25 million acquisition, is very much in line with what the company will do going forward. Overall goal is to dominate on the web the way the company dominates certain categories on cable. The site is different form the main, since it’s user-gen. Millions of uniques over the holiday season.”

Well, if Scripps is looking to emulate its success of cable properties like Food Network, HGTV, Fine Living, etc., Shopzilla would seem to have no place in Scripps’ future.

Update from Scripps earnings call:

CEO Ken Lowe said on the earnings call:

The story at Shopzilla is one of improvement. Shopzilla finished strongly in the 4th quarter, with both the top and bottom lines ahead of last year during the same period. Even better, we’ve been experiencing very solid revenue growth in the early going so far this year thanks to increased traffic acquisition efficiencies. Things are definitely looking up at Shopzilla both here in the US and in Europe.

From the Q&A session:

As far as Shopzilla, we are obviously very encouraged by the recent news there and the change of fortunes that began in the fall. We are optimistic now that we are cycling over some weak quarters from last year but the 4th quarter was a very strong quarter for us and for the first time in several quarters we were experiencing double digit growth in net revenue there. I think we’re safe to say mid-teens level on revenue growth there. As we entered the year, ‘08, we continued to see that strength and we’re doing a lot of things to ensure that is sustainable for us. So we’re all very optimistic about how things are going at Shopzilla. The team out there is an outstanding job of righting the ship and getting us on the right track going forward.

And the final question: Are you looking to sell Shopzilla or uSwitch?

No, we’re not.