That’s right, one of the world’s greatest investors, none other than Warren Buffett himself, recently proclaimed that only The Wall Street Journal and The New York Times have a certain future.
Berkshire Hathaway owns 31 newspapers, including The Buffalo News and the Omaha World-Herald, his hometown rag. So, for Buffett to say this suggests Canada’s largest newspaper, The Toronto Star, has the fight of its life ahead of it, despite already having spent the last decade or so in survival mode.
While it’s hard to argue with him given that Torstar has been losing money operationally speaking since 2013, I believe speculative investors who can afford to lose their $1.75 per Class B share are wise to consider placing a bet because if you look at the latest quarterly report, you’ll see that the bleeding appears to be slowing to the point where a turnaround could actually be possible.
Whether that will happen or not is the million-dollar question, but as I wrote in January, I’d sooner spend $2 on Torstar stock than I would Bombardier, Inc., Canada’s biggest corporate welfare recipient.
In the fourth quarter, Torstar’s revenue declined by 10% to $208.7 million. For the entire fiscal 2016, its revenue also declined 10% year over year to $761.7 million. That’s the bad news.
The good news is on the bottom line, where it actually made a net profit of $1.1 million compared to a $234.5 million loss in the same quarter a year earlier. Excluding the $209.3 million impairment of joint-venture assets from 2015, Torstar’s operating profit was $10.3 million — 368.2% higher than in the fourth quarter a year earlier.
Retiring CEO David Holland said of the quarter:
“Looking forward, we expect to continue to benefit from a solid financial position, having finished 2016 with $75 million in unrestricted cash and no bank debt. In 2017 we expect the digital evolution of our asset base to continue through reinvestment in and support of VerticalScope and through our continued efforts to advance our multi-platform strategy across our newspaper operations.”
Holland couldn’t stress digital enough if he tried.
Its digital ventures segment had $74 million in revenue in 2016, which was created after it acquired 56% of VerticalScope, a Toronto-based digital media company. While that’s less than 10% of Torstar’s overall revenue in 2016, the segment’s adjusted EBITDA was $23.7 million — 34% higher year over year, representing 45% of the company’s overall adjusted EBITDA.
The new CEO, who’s expected to be announced any day now, will be primarily focused on ensuring this number keeps rising while doing whatever is possible to ensure the company can generate a return from the $35 million it spent on Star Touch, which, to date, has been a colossal failure.
Keep the ball moving forward in these two areas, and future profitability isn’t out of the question. That said, if you can’t look past the doom and gloom, as Prem Watsa has — Fairfax Financial owns almost 28% of Torstar stock — then you probably shouldn’t be buying Torstar in the first place.
For those who can, like myself, $5 isn’t a pipe dream. But you’ve got to be patient — something that’s been said a lot in recent years.
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Fool contributor Will Ashworth has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares). Fairfax Financial is a recommendation of Stock Advisor Canada.