New York City, New York – (StockNewsDesk) – 08/06/2014 — USA Today publisher Gannett, has purchased the remaining 73% stake in Cars.com, as it moves to diversify its business into high growth areas. The deal values Cars.com at $2.5 billion.
USA Today has defied the general stagnation of the newspaper industry due to its reach and ubiquity. In contrast, most newspapers all over the country have been forced to reduce printing, circulation, and staff, as they grapple with a changing environment. Some companies, like Graham Holdings, have completely divested themselves from the newspaper business.
Cars.com is a joint venture between newspaper companies, as they realized the threat from online classifieds to one of the biggest money makers for newspapers in the past – auto classifieds. The website receives nearly 11 million visitors a month and continues to grow in double digits in terms of visitors and revenue, year over year. In contrast, print classifieds revenue is down 50% in the last 14 years.
The joint venture was comprised of Gannett, McClatchy, Tribune Media, A.H. Belo, and Graham Holdings. The website was successful in some ways in stemming the bleeding from the transition from print to online, however, on the whole, the newspaper companies still lost billions in revenue. CareerBuilder, a major job search website, is another joint venture among these entities.
The purchase represents a major step for Gannett as its entire market cap is $7.7 billion. Initially, the market enthusiastically responded to Gannett’s purchase as the stock opened with a big gap up of about 7%. However, the stock sold off all day to finish unchanged, and was slightly up on Wednesday. Nevertheless, investors seemed mostly enthusiastic about the company and excited about the possibilities of synergy between Cars.com and Gannett’s online properties.
The website was started in 1998 and is the leading site to shop for used cars but also offers options for new car shoppers and tools to compare different auto models in terms of year and make. The company has also disrupted the traditional auto dealer retail model by allowing comparison of prices and quotes from different dealers. The company receives revenue from dealers for listings of used cars with premium options for individual sellers and dealers.
Gannett’s motivation in making the deal is quite clear as its print business continues to lose revenue while its online divisions continue to increase revenue. The company is taking the logical step of moving resources into the growing segments of its operations. Gannett’s management went to great lengths to assure that it still stands behind its print business, but its actions undermine this talk. Another recent effort by Gannett has been to expand its number of television studios and presence on the Internet through content where it can sell ads or place Cars.com or CareerBuilder listings.
Newspaper stocks endured heavy selling during the previous recession. Some were unable to survive in that environment of tight lending and dwindling revenues despite aggressive cost cuts. However, the survivors have endured with more streamlined operations, and developed new sources of revenue to survive in the changing landscape.
Gannett is one example of this, and their recent aggressive purchase of Cars.com exemplifies management’s foresight in not stubbornly sticking to a losing plan. The stock chart of the past 10 years shows it best:
In 2009 at the nadir, the consensus was that Gannett would not be able to survive. Not only has the company survived, it has thrived in this environment. One reason for its survival is the strength of the USA Today brand, as it has a fixed customer base due to its non partisan bias and distribution in hotels all across the US.