Newspaper stocks have plummeted so far that value investors might be tempted to snap up shares. Don’t, says Goldman’s Peter Appert:
Despite record low valuations, we continue to advise investors to stay underweight the newspaper sector, as earnings remain under severe pressure in the context of unprecedented revenue declines. We believe the newspaper stocks are “value traps” and will not be interesting from an investment standpoint until revenues stabilise and then begin growing again, something we do not envision over the next 24 months.
The good news is that Appert doesn’t see the industry vanishing entirely. Instead, he thinks that the industry will begin to recover with a hybrid print/digital business model:
We do not believe the newspaper industry is going to disappear…..rather that it will become smaller and less profitable as the industry transitions to a hybrid print/digital model. This transition will likely take at least several more years to complete. In the meantime, there are more compelling investment opportunities elsewhere in the media sector.
As Peter’s chart below shows, newspaper ad revenue is now declining at a faster rate than anytime in the past 20 years. That said, it is interesting to note the rate at which revenue recovered in the past two recessions. Much of the decline this time around is secular, not cyclical, but should still be some recovery when the economy turns.
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