Wondering why publisher Dow Jones
I sure hope so. There's little else to be happy about regarding Dow Jones and the rest of the publishing industry -- unless you happen to live in the past. Dow Jones' shares had a good run until 2000, but they've since fallen more than 50%, to a recent $35.21. The publisher's growth has been woeful over the past decade, with revenue shrinking 2.5% on average per year and earnings dropping about 10% per year over that time frame.
Why the weakness? Nearly half of the company's sales stem from newsprint, which is experiencing a steadily shrinking subscriber base and subsequently lower advertising sales. In addition, advertising sales are cyclical, since they're one of the first expenditures cut by firms during economic downturns. The bad news doesn't stop there: Profit margins are low, debt is high, and strong operating cash flow has been devoured by capital expenditures and business acquisitions, as management tries to reposition its business model toward faster-growing online initiatives.
This is beginning to sound like a value trap -- but before we write Dow Jones off, let's try to hunt for some positives. The current dividend yield of 2.9% offers some consolation, since we're getting paid to wait for a turnaround. In addition, the company has an impressive array of publications that any Fool worth his or her salt should be reading regularly, including TheWall Street Journal, Barron's, and MarketWatch. The company's namesake Dow Jones Industrial Average further bolsters its brand, along with several other related indices and information-service offerings.
Dow Jones' website states that this combination of assets creates a virtuous cycle of journalistic excellence and business and financial success. Sounds good, but investors have been stuck in a vicious cycle for nearly six years, and there appears to be no end in sight.
Charlie Munger and Warren Buffett offered their thoughts on newspapers and media at May's annual Berkshire Hathaway
The above applies to Dow Jones, but it can be easily applied to competitors with similar business models, including Gannett
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.