#2: The New York Times Company
The New York Times Company (NYSE:NYT) is, and has been for decades, the premier daily newspaper company in the U.S. But the company has been shrinking rapidly. Ten years ago, The New York Times made $300 million on revenue of $3.1 billion. Last year it lost $40 million on revenue of $2.3 billion. The New York Times did not move online fast enough to offset the rapid erosion of print advertising. Its tardiness allowed it to be challenged on the Internet by properties like The Huffington Post, Google News and the news, sports and financial properties of portals MSN, AOL and Yahoo!.
As an indication of how the stock market measures the value of The New York Times, its market cap is $1.2 billion against its revenue of $2.3 billion in 2011. Low-brow content aggregator Demand Media has a market capitalization of $865 million against 2011 revenue of $325 million. Demand lost $13 million last year. The reason the market values of the two companies are so close? The Times still relies on the dying print business for the lion’s share of its revenue. Its market cap and cash balance are too low to allow it to more aggressively move to the Internet or buy large online properties. In the second quarter, The Times’ revenue was roughly flat at $515 million. The company lost 57 cents a share compared with a profit of 5 cents a share in the same period last year. The worst news from the quarter was that “digital advertising revenues at the News Media Group decreased 1.6 percent to $52.6 million from $53.5 million mainly due to declines in national display and real estate classified advertising revenues.” The Times did make advances in online paid subscriptions, but circulation revenue barely offset the drop in advertising sales.
At the heart of The New York Times’ uniqueness among American newspapers is the quality of its editorial content. The company has held the line on retaining its large editorial staff. It did lay off 100 people in 2009, which was about 8% of the news staff. The industry is in the midst of another wave of job cuts. The Times has not been able to show significant top-line growth, even with its digital subscription efforts. Print is in too much of a shambles for the company to shore itself up in the digital world.
While Groupon (NASDAQ:GRPN) might seem like an unlikely candidate for a list of companies that have their best years behind them, its stock price has fallen by well over 70% since its November 2011 IPO. Groupon’s primary problem is that the online coupon business, in which it was the major pioneer, is a commodity business now. It has not been terribly difficult for Amazon and other large retailers like Wal-Mart to enter the sector.
Groupon was the most significant player in its industry after beginning operations in 2009, when it posted revenue of only $15 million. That number rose to over $1.6 billion last year, but Groupon paid dearly for that growth. The company lost $675 million over that same two-year period before interest and taxes. Groupon’s revenue grew 89% to $559 million in the most recently reported quarter. But expansion continued to come at a cost. Groupon’s bottom line grew from a loss of $12 million in the same quarter last year to one of $147 million.
Groupon’s new competitors replicated most of its tactics very quickly. LivingSocial, the rival most like Groupon in terms of its business model, had 7.2 million unique visitors last year compared to Groupon’s 11 million, according to online industry research firm Comscore. LivingSocial has financial support from Amazon. Google has entered the sector with a product called Google Offers. Well-regarded industry website VentureBeat lists 33 direct competitors to Groupon, and none is a large corporation. The Chicago Sun-Times, one of the two daily papers in the city where Groupon is headquartered, summed up Groupon’s difficult challenges, “Groupon has been weighed down by high marketing and staffing costs and faces increasing competition from the likes of Amazon.com and Living Social, among hundreds of other local deals sites.” Even the hometown press has nothing positive to say about the company.
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4: Sprint Nextel Corporation
Sprint (NYSE:S), the No. 3 wireless carrier, is too small to ever gain any ground on AT&T (NYSE:T) and Verizon (NYSE:VZ). Sprint’s revenue rose rapidly from 2002 to 2006. Over the period, sales moved from $15.2 billion to $41 billion, aided by the buyout of Nextel at the end of 2004. Sprint paid $35 billion for Nextel, and the decision turned out to be a disaster. The Sprint network ran on a different platform from Nextel’s. Customers left the combined company. Sprint made the MSN “Customer Service Hall of Shame” several times, most recently in 2010. Sprint’s customer service ratings have improved significantly since then, but the damage has been done.
While AT&T and Verizon Wireless have grown rapidly, Sprint’s revenue has fallen from $41.1 billion in 2007 to $33.7 billion last year. Sprint’s cumulative loss during that period was over $43 billion. Sprint now has about 50 million subscribers to Verizon’s 104 million and AT&T’s 95 million. As a Morningstar researcher recently noted, “While Sprint has struggled, Verizon Wireless and AT&T have benefited at its expense. Fending off these much larger rivals will be increasingly difficult as data services become more important to the industry.”
#5: Barnes & Noble
The cause of Barnes & Noble‘s (NYSE:BKS) downfall can be described in one word — Amazon. In 2002, Barnes & Noble made $109 million on sales of $4.9 billion. That same year, Amazon lost $149 million on revenue of $3.9 billion. Fast forward to 2011 when Amazon’s revenue reached $48.1 billion and it earned $631 million. Barnes & Noble lost $69 million on $7.1 billion last year. Amazon may sell consumer electronics equipment and internet streaming video products, but at its heart it is still the world’s largest bookstore. The highlight of Amazon’s second quarter, in which revenue rose 29% to $12.8 billion, was that “Kindle Fire remains the No. 1 bestselling product across the millions of items available on Amazon.com since launch.” The product most visibly promoted on the Amazon.com home page? The Kindle.
Barnes & Noble’s legacy business is huge and expensive. As of its April proxy filing, the company operated 1,338 bookstores in 50 states, including 647 bookstores on college campuses. Obviously those stores require inventory, rent and personnel. And Barnes & Noble mentions “the maturity of the market for traditional retail stores” as one of the risk factors in its SEC filings. Is it any wonder that in its last fiscal year, Barnes & Noble had retail sales of $4.86 billion? That part of the company’s business shrank by 2%. Its Nook segment, which encompasses the digital business (including readers, digital content and accessories), had revenue of only $933 million. Digital sales rose 34% over the previous year but remain a very modest portion of sales. Barnes & Noble’s digital division is vulnerable. That is particularly clear when the market share of its Nook e-reader is taken into account. The Nook’s share of the U.S. market is 27%, in contrast to a 60% share for Amazon’s Kindle and 10% for Apple, according to Reuters. Barnes & Noble is hopelessly outgunned online, and the retail book business has leveled off.