What’s Left at The Washington Post Company After Bezos’ Buy?

The paper is just a part of WaPo, but the question is whether WPO stock is attractive without it

   

Less than one day after Amazon.com (AMZN) CEO Jeff Bezos announced his intent to acquire the Washington Post — the newspaper, not the entire Washington Post Company (WPO) — the question “why?” is being spouted out at a brisk pace.

It’s a tough question to answer, even with a hypothetical response. After all, Bezos’ experience is solely in Internet commerce. Why would he want to get into the print-media business, which most everyone knows is on its deathbed?

But it’s not the only question worth asking. The handful of folks sitting on the other side of the table might be wondering what’s the upside of owning the media company now that its flagship property — not to mention its namesake newspaper — are no longer part of the organization.

And that might be the most misunderstood aspect of The Washington Post Company — the D.C.-based newspaper isn’t even close to being the company’s only property. In fact, the company’s newspapers are but a small part of the organization. The corporation also operates a small number of websites, a telco outfit called CableOne, and the Kaplan family of school, testing and tutoring services. Indeed, the newspaper is/was merely a part of The Washington Post Company’s revenue mix; all those other divisions are still under the company’s care.

Given that, there are several upsides and downsides for WPO shareholders in the wake of Bezos’ buy.

Pros

  • The newspaper business has been bleeding money for a while. Now that’s Bezos’ problem. Although the size of the loss has varied widely since the great print-newspaper implosion finally stabilized a few years ago, the “newspaper publishing” line of the company’s income statement showed a loss of $52 million last year, and a loss of $17 million in 2011. It’s unlikely the organization would ever be able to turn that around.
  • The cable television and broadcasting divisions are reliable cash cows. Though even when combined, the two divisions don’t produce the revenue that Kaplan does, both are consistently profitable on an operating basis. The television broadcasting unit generated operating income of $35.5 million last quarter, while the cable television unit created $36.6 million in operating profits. They were the only profitable units (of five) for The Washington Post Company in Q1.
  • Although it’s still unclear how much — if any — of The Washington Post Company’s pension fund Jeff Bezos’ will be taking with him when officially garners the newspaper, one thing will likely persist no matter how the newspaper’s acquisition takes shape: The whole company’s pension fund is over-funded. The actuaries say it only needs $1.47 billion, but it has $2.07 billion worth of assets in it. In an era of under-funded pensions, that alone makes WaPo a breath of fresh air.

Cons

  • The price Jeff Bezos is paying isn’t particularly impressive. Granted, any price at all for an unprofitable division is technically “impressive,” but in the modern age of strategic investments, $250 million for a newspaper that drove approximately $560 million in revenue last year seems more than a tad subpar.
  • Right or wrong, owning “the” newspaper in Washington, D.C., gave the company leverage and influence over the nation’s lawmaking bodies. None of the other properties under the WaPo umbrella have the same muscle to shape policy or work an angle that favors the organization as well as the newspaper did.
  • While shedding a division that won’t stop bleeding is technically the smart move, The Washington Post Company seems to be getting further and further away from its media and media-advertising roots, and deeper and deeper into businesses that it might not be able to run as well. Case in point: Last month’s announcement that it would be acquiring Forney Corporation, which makes — oddly enough — sensors for natural gas furnaces.

Bottom Line

As for whether The Washington Post Company is better off without its namesake newspaper, the answer is yes, WaPo will be a better company without its print business. There was little chance of salvaging it back into a profitable venture again.

While the future of the company is still fuzzy, without the newspaper, the future is actually a little clearer. And it’s not bad looking.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/the-washington-post-company-wpo-kaplan-bezos/.

©2014 InvestorPlace Media, LLC

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