Wednesday, February 11, 2009

All the News That's Fit to Print

My core stock portfolio consists of about a dozen names.  While I like them all, there are two that I could be said to be passionate about:  GOOG and NYT.  One of my core investment beliefs is that the internet is one of the most important developments in the history of mankind.  (I wrote that last sentence and immediately thought "now that really sounds stupid" but I left it unchanged because I really believe that.  It's all about the importance of communication in society, etc., a topic which I'll develop in later posts).

I had planned on writing today's article about the New York Times.  I noticed that NTY ranked #496 in Bloomberg's list of average analyst rating for the S&P 500.  I know you'll want to know the four that ranked even lower:  AIV, EK, GM, and #500 is SHLD Sears Holdings.  It's clearly an out-of-consensus long, in my view because it's very misunderstood.

  As long as we're on the topic, if you like Covidian, Thermo Fisher, Phillip Morris, Davita, or Baxter you've got plenty of company-- they're the top 5 most loved by analysts.  Full disclosure:  GOOG ranks 21st.

My thesis on NYT is that most investors only look at two things:  financial metrics and an overall view of the newspaper industry.  Both are ugly.  Newspapers as we know them will go out of business except for a small cult following.  They'll be like photographs:  before the advent of digital photography, everybody took, developed, and saved photos in a shoebox.  But the digital age made 4x6 glossies virtually obsolete.  When's the last time that you took in a roll of film and paid to have it developed?  If you're under 25 you don't even know what that means.  Newspapers are headed in the same direction.  

My thesis is that the New York Times is different.  Every other newspaper in the country could (will) go out of business and the Times will survive.  It's unique.  It's our country's national newspaper of record.  It's head and shoulders above any other paper in its coverage of national and international news (with the possible exception of the Washington Post). If you're a president, or king, or dictator, a leader in business or religion, and you want to make an official statement, you're not on record unless it appears in the New York Times.  It serves a function that's been vital to society since Gutenberg.  

It's possible that the Times will someday stop publishing a print edition and appear only on the 'net.  I have previously argued that they should get out of the distribution business altogether:  let some other company print and deliver the paper under an economic model that makes sense.  Most of the financial pressures on NYT stem not from the (profitable) content part but from the expensive distribution function .  

So where does Google fit into this?  Well, content is a critical part of the internet.  Virtually everything on the 'net is about content, and most of it is junk (not the part you look at, but... ).  Pageviews drive success (revenue) and content drives pageviews.  

I like GOOG because it's by far the dominant internet play.  If my earlier statement about the importance of the internet is even close to true, GOOG is the horse that you want to ride.  If you only know them as a search engine, you probably can't imagine the scope of their internet projects.  Most don't presently produce revenue, but they all serve to position the company as THE internet leader.

I've believed that, at just over $600mm in market cap and about $1.7b in enterprise value, NYT would be a certain takeout candidate.  Of course, they have a dual-share structure which gives the Sulzberger family (owners of the paper since 1896) control of the board of directors.  Nonetheless, as the stock has slipped from 50 to 5 in the past six years, I'm sure that some of the family members  might be more open to a conversation with a deep-pocketed prospective buyer.  I have often thought that Google could be that buyer.  They've got plenty of cash, they have a history of making acquisitions of content providers (YouTube, Blogger, etc.), and they presumably share the Times's liberal political views.

So that was my topic for today, until I came across this video:  The Road to 2014.
If you've read this far, you're probably interested in the topic, so take 8 minutes to watch it.  It imagines a world where, frankly, Google takes over.  Rather than buying NYT, they render it virtually irrelevant.  It's a moral tale, and I'll leave the conclusion to you.  It doesn't necessarily make me any less bullish on either stock, but it's a fascinating view of the future, all the more so considering that it's 3 or 4 years old.  (Full credit:  I found the video and other interesting information at Zoli's blog Resistance is Futile: Google is Unstoppable)

Bottom line:  an increasingly connected world will rely on those who can create content as well as those who can organize and deliver it.  NYT and GOOG both fit.

Portfolio update

It was tough to watch yesterday's big decline.  But I still believe Bob Farrell's thought that the Dow will trade in a range of 7800 to 9800 until people just get tired of thinking about the stock market.  I also believe that the government's stimulus package can't be a success unless it produces a big stock market rally.  I'm hoping for an opportunity to buy WAG at 25 and PG at 50.

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