Gannett in Neutral Lane - Analyst Blog

With the improvement in the economic environment, the buzz about advertisers returning to the market is gaining ground. Gannett Co. Inc. (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 pace.

The drop in publishing advertising revenue has been decelerating since fiscal 2009, and continued to shrink in fiscal 2010. After plunging 7.9% and 5.7% in the first and second quarters of 2010, respectively, publishing advertising revenue dropped 5.1% to $646.7 million in the third quarter.

Encouragingly, the broadcasting division remains strong and benefits from significant political advertising. Management now expects television advertising revenue to climb in the mid to high twenties for fourth-quarter 2010.

However, advertising, which remains a significant source of revenue for the company, depends upon the health of the economy. Macroeconomic factors such as sluggishness in business spending, high unemployment and falling home sales may adversely affect the level of national, retail and classified advertising revenues, as advertisers cut their budget in response to weak economic conditions.

Gannett is taking initiatives to diversify its business model by adding new revenue streams in an effort to make it less susceptible to economic disasters. 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 improve market share battered by the economic downturn, publishing companies are even considering charging readers for viewing online content.

The New York Times Company (NYT) is transmuting its business model by adding diverse revenue streams, which include a circulation pricing model and a pay-and-read model for NYTimes.com in 2011. The company also plans to launch a paid subscription website, BostonGlobe.com in the second half of 2011.

Another media conglomerate, News Corporation (NWSA) has adopted an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content of The Times of London and Sunday Times of London in June 2010.

However, given a slow economic resurgence and a soft advertising spending environment, we maintain our ‘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. We also have a Neutral view on The New York Times Company and News Corporation.

 
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