Before we proceed, let me make it clear that the valuation I’m using is mine, not the company’s. The company won’t discuss any aspect of its offering while it’s in registration at the Securities and Exchange Commission. But numbers from the SEC filings yield a valuation range of $600 million to $1 billion.
This proposed offering of “tracking stock” called Times Company Digital could set the tone for the nation’s newspaper industry. (Tracking stocks are tied to a specific business, but don’t represent an ownership stake in it.) You can see why. A big-time Web-site stock would give Times Co. currency with which to buy Internet businesses, give stock options to techies and might even convince Wall Street that Times Co. is worth far more than the $8 billion at which the Street currently values it.
Times Co. and other newspaper firms–including The Washington Post Company, the owner of my employer, NEWSWEEK–are pouring millions into Web sites because they fear the Internet will make newspapers obsolete. The Net distributes news in a manner that’s easier, quicker and cheaper than printing it on dead trees and having delivery people toss it into puddles. It also threatens newspapers’ lucrative classified-ad business and competes with papers for mind-share of the up-and-coming generation.
Times Co. is the first newspaper firm to try to peddle a piece of its Web site to investors. If this deal does well, Wall Street will churn out publishers’ Web-site offerings faster than presses spew out newspapers. Since this offering is the first of its kind–and the Times Co.’s very name evokes prestige and rectitude–it merits a close look.
The biggest problem, at least to me, is that it’s not clear why a newspaper’s Web site should be treated as a stand-alone business. Who would look at the New York Times or Boston Globe Web sites (or, for that matter, the Dow Jones or Washington Post Company sites) if the companies didn’t have hundreds of journalists churning out news stories? Why not peddle a piece of The New York Times’s profitable real-estate section? It does a lot better than the Web sites, which are losing more than $30 million a year before tax benefits. But you can’t peddle the real-estate section as a dot-com.
Then there’s the problem of figuring out what the Web sites’ business consists of. Their revenues seem to be running about $25 million a year, which is pretty good for a relatively young business. However, some of the revenues seem to come from barter deals, which is like getting your own money back rather than selling something. One of the apparent barterers: TheStreet.com, a nifty financial Web site. Times Co. made a much-ballyhooed $15 million investment in the site last year. But only $3 million was cash. The other $12 million was in services, apparently consisting at least partly of ad space.
Two more problems make it hard to evaluate the business. First, the SEC filings have no information I can find about how many “unique monthly visitors”–Netspeak for individuals–visit the sites. That’s important to advertisers. The company talks about 10.3 million registered users. But I think I’m at least three of them, because it’s easier for me to re-register than to dig up my old user name and password. Second, there’s no information about demographics–another statistic that’s important to Net investors and advertisers.
And, finally, the valuation numbers. The fine print shows that the company has about 85 million shares outstanding and 5.4 million more shares under option. The company says those 90 million shares had a fair market value of $7.03 apiece in January. Now, watch. If the company sells 10 million shares to public investors at $10 each, it will have 100 million shares outstanding–and a $1 billion valuation. And $10 feels like a low price.
Times Co. is a class outfit. But so are GE and Disney, whose NBC Internet and Go.com Net offerings have been dogs thus far. So be careful. If you bite on this offering–especially after a sharp run-up–be prepared to have the market bite you back.
