Primedia Primed For Better Times
Mark Lewis, Forbes.com, 10.25.01, 2:07 PM ET
forbes.com
NEW YORK - Apparently there's life in the media-convergence model after all. Despite reporting a big third-quarter loss, Primedia nudged its stock sharply higher today by offering encouraging signs of better times ahead.
Primedia (nyse: PRM - news - people) is one of the nation's biggest magazine publishers, with such titles as New York and Seventeen. It's also a major online player with the popular Web sites of About.com. The idea is to integrate old media and new à la AOL Time Warner (nyse: AOL - news - people), in part by using cross promotion to leverage Primedia's content to the max.
"The whole is greater than the sum of the parts," say analyst Mark Henderson, who follows Primedia for ABN Amro. "It's a good model. I think it works."
The problem for Primedia is that its finances also are leveraged to the max--and at a particularly bad time. This year the firm finalized its acquisition of About.com and also added more magazine titles by snapping up EMAP USA--just as the advertising market was swooning. Then came the events of Sept. 11, which pushed the ad market into an even deeper slump.
Primedia issued an earnings warning on Sept. 26 and today it delivered the promised bad news. The firm posted a third-quarter loss of $292.9 million, or $1.29 per share--far wider than the year-ago loss of $56.3 million or 34 cents per share.
Encouragingly, revenues from continuing businesses rose 7%, to $407.5 million. But Primedia's EBITDA (earnings before interest, taxes, amortization and depreciation) from continuing businesses fell to $34.5 million from $59 million. That was in line with the Sept. 26 warning, which said EBITDA would come in between $33 million and $36 million.
Primedia is controlled by buyout firm Kohlberg Kravis Roberts and run by Thomas Rogers, who today offered assurances that the firm remains able to meet all its financial obligations. Investors apparently were mollified: The stock was up 19 cents, to $2.14, in afternoon trading on a day when most stocks were declining.
Primedia plans to raise cash by selling off certain assets. "It's a bad market to be selling into," Henderson notes. But Rogers says the firm has "multiple interested buyers for various properties, [is] moving ahead with the asset sale process and will announce transactions over the next few months."
Primedia declined to provide detailed financial guidance going forward, but indicated that the fourth quarter will be "much stronger" than the third quarter, and that there will be "significant upside" in 2002.
Even with today's upswing, Primedia shares are still a long way from their 52-week high of $16.50. But eventually the ad market will come back and Primedia--with its new-media approach--might benefit more from the snapback than a traditional media company would. That's if Rogers can keep Primedia together until then. Today's market reaction indicates that investors like his chances. |
