I cut my investment teeth immediately after college when, with my undergraduate journalism degree in hand, I became a trader in New York at the venerable Wall Street firm of Kidder Peabody & Co. One of the first things I learned in my new position, once I'd mastered "bid" and "ask," was to fold my Wall Street Journal in such a manner that I wouldn't infringe upon my seatmate's space as I rode the train from Long Island to Manhattan each morning.
Today, even when reading the Journal in my office or in an easy chair in my living room, I still fold the paper as if trying to avoid train space encroachment. Life's lessons -- including my daily plunge into the depths of Wall Street Journal financial news -- die hard. And now it appears that our fast-moving world will soon include a number of changes for the Journal, changes that will manifest themselves with January's first edition.
Changes in our midst
Earlier this week, Gordon Crovitz, executive vice president of Dow Jones
The planned changes will include a reduction in the newspaper's size. Apparently many of the Journal's readers did not have the benefit of my Long Island Railroad training, and so without providing specific dimensions, Crovitz promises that, "We'll move to an easier-to-handle size, narrower in size than the current Journal ..."
Other changes will involve more interpretative analysis of the likely meaning of financial news and, in an effort that I applaud, a stronger relationship each day between WSJ.com and the paper's print copy. As Crovitz noted in his letter, "We're very proud of WSJ.com -- at almost 800,000 subscribers, it's by far the largest subscription news site on the Web. But readers and online users say we should make the print and online Journal fit better together in your day."
There also will be a change in the percentage of the paper's news devoted to exclusive news, versus "making sure you're aware of the key developments of the previous day." These two areas are essentially balanced in the current Journal. But beginning in January, the exclusive news portion will increase to about 80%, with more generalized news information constituting the remainder. At the same time, Journal reporters and editors will apparently seek to achieve a more predictive stance on the news than heretofore has been the case. "Expect to see more forward-leaning coverage," the letter promised, "with headlines featuring predictive and explanatory words like 'will' and 'means' and 'why.'"
But not all the changes are intended solely for readers. Wall Street Journal advertisers will be accorded more predictability in page positions, standard advertising units, and other as-yet-unspecified new advertising opportunities. But along with these changes -- and unlike most general circulation newspapers published by, for instance, TheNew York Times
To buy or not to buy
And so, with these rather significant changes in the offing, along with the impressive subscriber growth, should Fools be lining up to buy shares in Dow Jones? My best answer is a hearty "not yet." But to understand the rationale behind that answer, perhaps we should look a little more closely at what comprises Dow Jones and at some of its basic financial metrics.
The Journal -- along with Barron's, the weekly financial tabloid -- constitutes most of Dow Jones' Consumer Media Group, which accounts for about 60% of total revenues and is easily the largest of the company's three operating units. The second unit, which the company calls Enterprise Media, includes many of the names you've heard of that start with Dow Jones: the news service, the index, etc. Its revenue contribution is about 20% of the total, as is that of the third unit, The Consumer Media Group. The latter includes a chain of 15 daily and 19 weekly community newspapers that are located in places like Nantucket, Cape Cod, and a number of Massachusetts towns and cities, along with idyllic West Coast locations like Santa Cruz, Calif., and Medford, Ore.
From a more quantitative perspective, the three Dow Jones operating units are expected to generate nearly $1.85 billion in revenues this year (December) and slightly more than $2.0 billion in 2007. Analysts' per-share earnings estimates are for $1.06 this year -- up about 8% from 2005 -- and for about a 40% hike next year, to $1.48.
But looking still deeper under the company's financial hood, its forward price/earnings ratio -- reflecting the current price of slightly above $36 and that same $1.48 per share that analysts are anticipating Dow Jones to earn in 2007 -- is nearly 25 times. And one of my favorite metrics, the five-year PEG ratio (the price/earnings ratio divided by the expected earnings growth rate) is above 2.35. I love PEG ratios below 1.0, and, given certain industry or company circumstances, can occasionally accept them up to 2.0, but 2.35 is getting a little high for me, especially in an industry whose forward prospects are still uncertain.
If you're still a fan of the price-to-book ratio, you may be sobered by the Dow Jones level of nearly 10.5 times -- this shows the amount that you'd be paying above the company's liquidation value for shareholders. And the enterprise value (basically all of the debt and equity it's taken to fund the company) divided by EBITDA (earnings before interest, taxes, depreciation, and amortization) is 13.5 times, indicating a rate of investment return somewhat lower than I would like.
Add to all this the undeniable fact that about 20% of the company's revenues are generated from newspapers published in small- and medium-sized towns, and -- while I'm eager to see the new and improved Wall Street Journal -- I'm inclined to take my own advice on Dow Jones and review the company's investment attractiveness in a year.
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Fool contributor David Lee Smith survived his initial encounter with Wall Street. He welcomes your comments or questions. The Fool has an ironclad disclosure policy.
