American humorist Garrison Keillor once noted that "A good newspaper is never nearly good enough, but a lousy newspaper is a joy forever." In this age of the Internet and generally dwindling newspaper circulations, you might, assume that investing in newspaper companies wouldn't be too smart. But think again. Some newspaper companies have a lot to offer, and some newspaper companies may indeed be good enough -- for your portfolio. Case in point: TheWashingtonPost.Co.
I hadn't given this company much thought until two things happened. First, I moved to Northern Virginia to work for The Motley Fool. It was then that The Washington Post became my local newspaper, and a pretty good one at that. A few years later, I read and was blown away by Personal History, the autobiography of Katharine Graham, who ran the company for many years. (I highly recommend it. And don't just take my word for it -- it won a Pulitzer Prize, too.)
Meet the company
Let's back up a bit, though, and get an overview of the company. In its own words: "The Washington Post Company is a diversified media and education company whose principal operations include newspaper and magazine publishing, television broadcasting, cable television systems, electronic information services, and educational and career services."
Here's a sampling of the company's operations:
- The Washington Post
- The Gazette newspapers (Maryland)
- The Herald (Everett, Wash.)
- Newsweek magazine
- Television stations in Detroit, Houston, Miami, Orlando, San Antonio, and Jacksonville
- Cable systems serving subscribers in midwestern, western, and southern states
- Kaplan, Inc., a provider of educational and career services (think Stanley Kaplan)
Green flags
There are many things to admire about The Washington Post Co., besides its historic role in covering Watergate and the Pentagon Papers. Here are some things to consider.
First off, while we tend to think of The Washington Post Co. as a media company, it's also very much an education company, and increasingly so. Its Kaplan subsidiary saw revenues advance 35% in 2003 to $838 million, putting it on a pace to perhaps hit $1 billion in revenues next year. Kaplan Test Prep has served more than 3 million students over 65 years, targeting high school and college students and professionals preparing for admissions tests to college and to graduate, medical, and law schools.
Kaplan also co-publishes with Simon & Schuster more than 150 book titles, predominately in the areas of test preparation, admissions, career guidance, and life skills. And it develops educational software for the K-12 and graduate markets, too. Kaplan Higher Education institutions have offered degree and certificate programs in law, health care, business, information technology, fashion and design to more than 40,000 students. Meanwhile, Kaplan Professional offers education and training services to nearly 350,000 professionals worldwide and its Dearborn Publishing division puts out more than 200 business books.
Impressive, no? In his 2003 letter to shareholders, CEO Donald Graham notes, "In a few years we expect Kaplan to be our most profitable business, even if we make no more acquisitions."
Next, The Washington Post Co. is taking advantage of opportunities presented online. In 2003, its revenues from online publishing activities advanced an impressive 30% to $47 million. It's not realistic to expect continued 30% growth forever, but strong growth for the next bunch of years is certainly possible. Also in 2003, online advertising revenues increased 59%, while revenues from the "Jobs" corner of washingtonpost.com rose 29%.
Growth is another plus for the company. It's a big firm, but not an international behemoth. This, for us investors who think the company is well managed and likely to thrive, means it carries the potential of becoming an international behemoth. Its Kaplan subsidiary, for example, is already branching out overseas, through acquisitions.
Another appealing aspect of the company is that a primary shareholder and director of the company is none other than super-investor Warren Buffett, who heads Berkshire Hathaway
Lots of numbers on the company's financial statements look good. The company's debt is declining, from $883 million in long-term debt in 2001 to $422 million in 2003. The firm paid down its total debt by $34 million in 2003. Net profit margins had fallen in recent years but have been increasing recently, rising from 7.9% in 2002 to 8.5% in 2003.
The current economy also offers a reason to like The Washington Post Co. In the recent environment, advertising revenues have taken a hit. As the economy improves, which it inevitably will do at some point, advertising revenues will become a stronger contributor to the company's top and bottom lines.
Then there's brand value. The company owns some very valuable and well-known names. The Washington Post is the nation's fifth-largest newspaper (circulation-wise), after USAToday, The Wall Street Journal, The New York Times, and The Los Angeles Times. Newsweek magazine is also a major property, with a readership of around 3 million.
And let's not forget management. The company is led by Donald Graham, son of Katharine Graham. He's a straight shooter and offers a lot of transparency for interested investors. He's focused on long-term results and hasn't been afraid to take short-term hits in order to make sizable long-term investments.
Red flags
Along with many reasons to consider buying the stock are some reasons to hold off. First, the newspaper industry itself is one major concern. It's not the most attractive business. It's not even growing slowly. As The Washington Post itself reported, "Daily circulation at The Post declined 2.0% and Sunday circulation declined 1.8% in 2003. For the year ended December 28, 2003, average daily circulation at The Post totaled 745,000 and average Sunday circulation totaled 1,035,000."
Growth is another concern. While there's great promise of revenue and earnings growth from international operations, the education business, cable operations, online ventures, and more, the truth is that right now, over the past few years, the company's overall growth rate has in general not been overwhelmingly impressive -- though this is partly due to aggressive investing in its most promising divisions. The growth rates may well pick up soon, though, as these investments begin paying off.
Finally, there's valuation. Fool Robyn Gearey recommended the stock back in our 2002 Industry Focus report, and it has nearly doubled in value since then. It is currently trading in the low $900s, with a price-to-earnings (P/E) ratio in the high 30s. Don't let the $900 scare you, though -- remember that a $500 stock can be a bargain while a $2 one can be grossly overvalued.
In sum
So, should you rush out and buy shares of this company? Probably not. At its current stock price, it's not a screaming bargain. But consider keeping an eye on it. Perhaps add it to your watch list and wait for a buying opportunity, if it ever drops. In the meantime, drop by our Washington Post discussion board to gather info and opinions on the firm. (We're offering a free 30-day trial of our vast and vibrant online community right now -- give it a whirl.)
You might also want to check out the company's competition. Fellow newspaper and media enterprises include Gannett
Selena Maranjian produces the Fool's syndicated newspaper feature -- check it out . She owns stock in Berkshire Hathaway. For more about Selena, view her bio and her profile . You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.
