Saturday, November 17, 2007

Column: GateHouse Media strategy has not worked as well as expected

Boston Globe columnist Steven Syre says GateHouse Media's "hyperlocal" strategy which was appealing to investors when the company went public does not seem to be panning out as well as expected, but the company is still doing better than much of the industry:

"Our thesis that a focus on small, hyperlocal markets would serve as a counterweight to cyclical and secular pressures negatively impacting newspaper industry revenue performance has proven only partially correct," wrote Goldman Sachs analyst Peter Appert when he downgraded Gatehouse shares from "buy" to "neutral" yesterday. He cut his price target from $16 to $10 per share.

Another analyst, John Janedis of Wachovia Capital Markets, cut his Gatehouse forecast but still likes the hyperlocal business model. "It's really hard to argue those papers and groups are not outperforming the industry today," he said.

The weakest parts of Gatehouse's business were some of the same sources of revenue under long-term pressure at all newspapers, namely real estate and auto classifieds.

The column noted that much of GateHouse's problem is with its newspapers in the Boston area, but it provided a telling comment about the way in which the company is using its money:

Gatehouse borrows heavily to buy newspapers and spends almost all its profit paying out a big dividend. As the stock has fallen, the yield on the dividend now stands at 15.6 percent. That's a sign investors fear declining business may force the company to cut its payout.

GateHouse Media owns numerous papers in this area, including The Carthage Press, Neosho Daily News, Neosho Post, and the Big Nickel.

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