Every year, Goldman Sachs hosts the "Communacopia Conference," an investor gathering that focuses on various public companies involved in mass media and advertising. The conference, which is now in its 20th edition, is a real chance for firms to hobnob and glad-hand, but amid all the buzz at this year's event,
The New York Times Co. (NYSE: NYT) sought to dampen the fun. The venerable media company announced print advertising revenue has suddenly slumped anew. As a result, the company projects ad revenue in the third quarter ending Sept. 30 to total $258 million, 10% below prior-year levels. This is sobering news for an industry that was just starting to put the brutal slowdown of 2008 and 2009 behind it.
Analysts have been slow to react, but expect them to lower their 2012 earnings forecasts and target prices for many major media companies. The good news is TV and Internet ad spending is likely to hold up reasonably well in 2012, since marketing spending is likely to become more tightly focused on these mediums. Indeed, major broadcast firms aren't so dependent on ad revenue anymore. Disney (NYSE: DIS) and Time Warner (NYSE: TWX), for instance, each only derive about 20% of their sales from advertising.
Yet you should be greatly concerned about two media niches: newspaper publishing and billboards, which fared quite poorly in 2008 and 2009, and are setting up for yet another deep slowdown. You should avoid the temptation to buy these stocks, even if they look cheap. In fact, you may even want to short them. Here's why...
Don't short The New York Times Co.
Shares of The New York Times Co. have been down 20% since Sept. 15 and now trade at about $6. It's still not clear, however, whether investors have a compelling case to short the stock at this point. Sure, the print side of the business continues to shrink and early positive results on the digital subscription firewall may not be sustained, but there are a couple of steps management can take to defend shares. First, managers can look to cut newsroom costs even further. The company is one of the few publishers still paying top-dollar for its key journalists. Finding another 10% to 20% of payroll to trim wouldn't be too hard without imperiling the company's impressive breadth and depth of coverage.