The Washington Post Company (NYSE: WPO) published data for the third quarter earlier today. Can't say I was mightily impressed by the numbers. Sure, there was a profit increase, but the top line wasn't exciting, and the newspaper division, as you might have expected, experienced a sharp decline in sales.
Net revenues rose 2%. Earnings per share came in at $1.81. That was sharply higher than the $1.08 per share recorded in the comparable period. Yet, I think you have to be careful in terms of reading too much positive spin into the growth rate.
Just keep in mind what was driving the revenue gain. Management credited the segments dedicated to education and cable for pulling the most weight. Unfortunately, magazine publishing, television broadcasting, and the aforementioned newspaper section performed very poorly.
Newsprint is not in a healthy state. How many times have you heard a statement like that? A lot, I bet. We're in a different age. The Internet has changed the game of information distribution, and traditional news sources have not been able to effectively adapt to a viable model of value for their operations. The Washington Post Company is not alone. Businesses with core newspaper divisions such as The New York Times Company (NYSE: NYT) and Gannett (NYSE: GCI) are tackling the same economic challenge.
There are contrarian viewpoints out there on this industry. Steven Halpern highlighted one at the beginning of the month. The argument basically states that newspapers will not become completely extinct, and that a couple of the bigger names will survive the collapse of print. If this is true, then you may be able to find an investment thesis somewhere in the rubble.
I comprehend this line of thinking, but I nevertheless am not tolerant of the risk I'd be taking by investing in a newspaper entity. Considering the fundamental weakness of the industry, and the absence of a holy-grail online model for monetization, I will avoid The Washington Post Company and others like it for the time being (and probably beyond).
Disclosure: I don't own any company mentioned; positions can change at any time.