The Company directly, and through its ownership of associated companies, publishes 56 daily newspapers in 23 states and more than 300 weekly, classified and specialty publications, along with associated and integrated online sites.
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Lee Enterprises publishes local newspapers, information and advertising primarily in midsize markets, with 51 daily newspapers and a joint interest in five others, rapidly growing online sites and more than 300 weekly newspapers and specialty publications in 23 states. With the acquisition of Pulitzer in June 2005, Lee is the fourth largest newspaper company in the country in terms of dailies owned, and grew from 12th to seventh largest in terms of total daily circulation.
The company generates 77% of its revenue from advertising. However over the years, the newspaper advertising spending has been negatively impacted by state of the overall economy, including unemployment rates, inflation, energy prices and consumer interest rates. Growth in readership and circulation can drive the advertisement revenues, but according to national Editor and Publisher data, both daily newspaper and Sunday circulation has been on a declining trend since their peak in 1985.
Globally, amongst advertising spending category, the online advertisement will enjoy a faster growth compared to others. According to PricewaterhouseCoopers internet advertising will experience a compounded annual growth rate of 18% and is expected to reach $51.6 billion in 2010. Endorsing the same, the company saw a top-line growth of 2.8% for Q1’07, backed by increase in advertising revenue by 2.3% particularly with online advertising up by 53%.
Lee’s online advertising business has experienced rapid growth over the last several years. The company in order to increase its online advertising revenue has entered a strategic alliance with Yahoo, whereby the classified employment-advertising base will also post job listings on Yahoo’s HotJobs national platform. However the sad part is that the company’s online business contributes a mere 3% to the total revenue.
A declining trend towards newspaper circulation would negatively impact the advertising revenue and therefore it is best to avoid Lee.
Why the FCF of LEE is so lower than the other? Please!
Relishing a cup of coffee along with reading newspaper has become pass. The importance of time has forced the next generation readers to switch over their preference towards online version of newspaper. The rapid increase in online newspaper audience has been a nemesis for the print newspaper industry. Newspaper circulation is tumbling which is clearly seen from the report published by Newspaper Association of America (NAA), an industry group, reporting that the weekday circulation at U.S. dailies fell 2.1% in the latest six-month reporting period, while the comparable figures for Sunday newspaper fell 3.1% during the same period.
Lee Enterprises, whose papers mostly serve small and midsize markets in the Midwest and Northwest, witnessed a 53.9% rise in its online advertising revenues for its second quarter of 2007. However, this increase couldn’t save Lee from posting a decline in its total operating revenues. Poor circulation and weak print advertising were the main culprit for this debacle. Rollout of Yahoo! HotJobs has received tremendous response with more than 30,000 postings on the network. However, concerns over declining circulation trend overshadow any achievement through online advertising.
The CEO asserts, “Rapid growth (in online advertising) continues to offset softness in print advertising”, but it still seems a long journey for Lee even to think of break-even. Players like Yahoo! and Google dominate the online advertising world and would provide a tough time for Lee. If Lee doesn’t reacts quickly to these changing industry dynamics, it would slowly and steadily but surely will become yesterdays’ news.
LEE is a GOOD growth stock over the next 5 years. All of its newspapers are primarily in small towns where the paper is the only source of news. The demise of the newspaper, like that of radio predicted when TV came into the world, is vastly overrated particularly in areas where newspapers are the ONLY source of local news...i.e. the small towns that LEE serves! LEE has renegotiated its debt and is in an excellent position - poised for growth - as the economy begins to come back. The danger is to compare this company that serves small towns to larger newspapers in urban areas that have more of a battle of surviving in multi-media centers. LEE has been an excellent growth stock since the 70's and will continue to be one in the next 5 years! I rate it a strong BUY.