So the story is that Meredith Corporation just earned $3.13 per share with 40.48 million shares outstanding. It reported its highest ever free cash flow for its second fiscal quarter and announced for the first time that digital revenue has surpassed print revenue.

Here's an excerpt from the earnings transcript: With that, let's go into detail about the quarter. Starting with the digital side of the National Media Group, our team delivered an outstanding performance. Digital advertising revenues grew 22% to a record-high $161 [$161.2] million. Our multi-year efforts to bring all of our brands together on a single digital platform continues to enable strong consumer engagement, along with growth in advertising and e-commerce revenues.

Of note, traffic to our digital properties and partner networks grew significantly, with 16% session growth from the prior-year period. Our fiscal second quarter, which includes several holidays, is heavily influenced by food. Allrecipes, the world's largest digital food site, as ranked by Comscore, delivered record performance, with almost 0.5 billion sessions, up 23% from the prior period. People.com also delivered record performance and remains the number one destination in the entertainment category. Additionally, our powerful National Media Group brands, led by people and Better Homes and Gardens, delivered strong growth in brand licensing revenues, particularly from our digital relationship with Apple News Plus, along with continued growth from our longtime licensing partner, Walmart.

Most important excerpt: As a company, one of our key performance measures is free cash flow, and we generated $174 [$174.3] million in free cash flow in the second quarter. It was the most free cash flow generated during the second fiscal quarter in our company's 119-year history, and compares to $67 million in the prior-year period.


It's very important to understand that the company only has a 1.6 billion dollar market cap. Historically they have traded at a 21x multiple. So if as an investor you only had this earnings period from the company and nothing else the market cap of the company should be about 3.6 billion.

There are three main factors that have kept investor confidence suppressed over the last year:

1. Covid
2. Restructuring
3. Uncertainty about digital being a viable revenue source

So they beat on earnings by 40 percent coming out of a quarter during the peak of covid with yoy revenue growth and digital now representing the majority of their revenue.

They also own 17 very profitable television stations. They also have over 200 products in Walmart that they designed under the Better Homes and Gardens Brand that are well-reviewed and very strong sellers.

This company is a treasure-trove of value and imo is worth at minimum 3x its current market cap.

Brands they own:

25 Beautiful Homes
Ageless Iron
Allrecipes Magazine
American Baby
American Patchwork & Quilting
Better Homes and Gardens
Country Life
Diabetic Living
Do-It-Yourself
Eat This, Not That
EatingWell
Entertainment Weekly
Every Day with Rachael Ray
FamilyFun
Fitness
Food & Wine
Health
InStyle
Living the Country Life
Midwest Living
Parents
People
Practical Boat Owner
Real Simple
Shape
Siempre Mujer
Southern Living
Successful Farming
Traditional Home
Travel + Leisure
Wood

Full earnings transcript:

https://www.fool.com/earnings/call-t...ll-transcript/

Thanks for the writeup

I own a position so I am biased but after this earnings report I truly can't find anything wrong with the company. I really believe it's the best investment situation I've ever seen.

Seems like a decent pick. One thing to be aware of is their high debt load which would need to factor into your risk assessment.

The cash that the assets are throwing off is increasing so quickly that it has allowed them to increase the amount of cash on their balance sheet to 450 million as of the end of January. The increases in digital traffic growth, licensing revenue, and the appreciation in the asset values of the brands generating that growth, means that the assets on a book value basis are increasing in-line with the overall value of the entire business. The value of the assets is much higher than their debt and those assets continue to increase in value.

I believe that their relationship with Walmart alone has increased the value of the Better Homes and Gardens brand to the point that by itself it is worth more than the present market cap of the entire business.

The major reason that is true is that Better Homes products are a significant part of Walmart’s business today. They sell everything from furniture to candles under that brand. Go into a Walmart and take a look at the products. You’re going to be surprised how dominant they are in many different categories.

Coming out of covid they should be able to net at minimum 350 million in 2022. If given a standard multiple of 15x earnings the market cap should be 5.25 billion by the end of 2022. But the key to realizing that return as an investor is to be forward looking. If you wait until they already earn the money to make an investment it will probably be too late.

I also see big potential for an acquisition by a larger traditional media or social media company. The reason being is that proven digital profitability is so vital to so many internet and traditional media companies that they will do anything to get it because it guarantees their own survival. Meredith as of this quarter earns more revenue through digital than print and they showed that they are doing it very profitability.

Thanks for the research. I’m in for 100@24 today to start.

A bit wary that historical valuations will hold for a primarily print media company going forward, but agree that they’re look good at growing cash flow from other paths. Don’t see why it shouldn’t at least rebound to pre-COVID levels, and decent amount of ceiling above that if things pan out.

So I wanted to find a comparison to Meredith and I think a really great comparison is Newscorp $NWS. I'm going to link to the earnings transcript for the company. This 12 billion market cap company had its best quarter in 7 years.

https://seekingalpha.com/article/440...all-transcript

Revenue: NWS 2.4 Billion, MDP 900 million
Earnings: NWS 262 million, MDP 174 million
EPS: NWS .34 cents, MDP $3.13
Market Cap: NWS 12.28 billion, MDP 1.35 billion
Shares Outstanding: NWS 600 million, MDP 56 million
Share Price: NWS 20.82, MDP 24.02
EPS as a Percentage of Share Price: NWS 1.62% MDP 13.03%

It's important to reiterate that they are saying that this is their best quarter in 7 years. But it's clear that their cost structure is much higher than Meredith even though their overall earnings number is higher. They would have to increase their revenue 10x its present level for them to be able to achieve the same earnings per share as Meredith if all other costs remained the same.

I think though that them having the best year in 7 years clearly points to a general growth for all companies with similar types of assets.

So if the trend is growing in the revenues that this entire class of assets generates then it is very unlikely that Newscorp is absurdly overvalued. It stands to reason then that Meredith must be extremely undervalued because it's going to earn much more profit for every dollar that these assets generate.

just a heads up, do no annualize the dec quarter or assume it can be repeated. for this industry political cycle is huge and we saw a record amount of spend on tv ads this election cycle.

also all of the fcf goes to debt paydown for the next few years. Something I have learned in my investing career, dont buy no growth/slow decline businesses with bad balance sheets.

The majority of their revenue is now digital and it's growing strongly. They have a revenue-sharing deal with Apple News Plus in which they provide content and earn a percentage of the revenue that it generates. On that deal, the revenue is growing 60 percent yoy. While it's true they had very strong political revenue they also had reduced revenue in other segments because of covid.

When a balance sheet is "bad" is subjective. If you're Ford $F in 2008 it would be pretty difficult to make an argument that they had a good balance sheet.

Meredith has debt because they made a large acquisition in February of 2018 and have been spending the last 2 years integrating that into the company. They sold off stuff that didn't fit well and kept everything else.

They also paid a large and increasing dividend for over 70 years in a row. It wasn't until covid hit that they made the decision to suspend it.

I've looked closely at their sources of revenue and most of them are growing very quickly. They have so many quality assets, so many licensing opportunities, that it's almost overwhelming to research.

The key to it all is management execution. Management is crushing the game. They have deals with Apple, Amazon, and Walmart. They are starting to develop products to sell directly. They run something like 20 different high traffic .com websites, many of them #1 in their market with growing WORLDWIDE traffic. People.com for instance.

Before reaching a conclusion just make sure to really look at their entire business. The paradigm has completely shifted. I think this quarter is going to be very strong. Management gave an indication of that strength when they revealed that at the end of December they had $378 million in cash on the balance sheet. Then during the earnings call they said as of the end of January that they had $450 million in cash on the balance sheet. Essentially telling listeners to the earnings call that they increased their retained cash by $72 million for the month of January. If that is an indication of earnings, it would put them on pace to exceed the December quarter earnings of $172 million.

Also it’s important to mention that 13 percent of the float has been sold short. As of now it would take them 8.8 days to cover. So that’s likely where selling is coming from as over 100 percent of the float is owned by institutions. (103 percent). I’m pretty sure their days are numbered to keep it suppressed.

In general short sellers are incredibly reluctant to take a loss even when it becomes obvious they should.

Love the write-up. I work in the space and they do everything well.

They have a lot of very strong email newsletters too. I think it will be interesting to see how they incorporate paid memberships, which are becoming hugely popular for digital publishers these days.. I dont think I've noticed anything from them yet.

It will also be important to see how their rankings and traffic maintain in the long run. I know there is a lot of pushback on these large companies that own 20-30 websites and interlinking to share authority across brands.

A few similar brands to check out:
https://www.futureplc.com/brands/
https://www.hearst.com/magazines
https://www.gannett.com/brands/

I didn’t even know email newsletters were a thing. They mention that they have something like 200 technical magazines that are highly specialized. I think that now that they have successfully transformed to the internet that they are going to be able to capture market share in many categories because of how much experience they have in different areas. Plus they own an incredible amount of evergreen content having been in business for over 100 years. The market doesn’t see it my way yet the stock has been down last couple of days. I’ll be back in a year to see the stock way up. I’m virtually certain.

Picked up 150 at 23.46 this morning for the sweat. Up 3.5% from there lets go.

Honestly, this is not a good sign, and tells me that you need to keep digging. No company--and no investment--is perfect; there's always a reasonable bear argument to be made somewhere.

Some thoughts:
- Being in business for 100+ years is a liability, not an asset, for a transition to digital
- Websites are typically valued at 3-5x earnings; putting a 21x multiple on it seems pretty suspect
- How much of their traffic is paid vs organic?

So, is the pump and dump off? Jk
Interesting research though, will take a closer look

Im going to respond to your post soon but wanted to share that we just got a big upgrade from Shittygroup.

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MDP

06:34 02/09/21

Meredith price target raised to $28 from $21 at Citi
Citi analyst Jason Bazinet raised the firm's price target on Meredith to $28 from $21 and keeps a Buy rating on the shares following the company's fiscal Q2 results.

The Vanguard Group just filed a "Statement of acquisition of beneficial ownership", which is also known as a 13G. In the filing, it appears as though The Vanguard Group claims to own 4,125,882 shares. This represents 10.19% of Meredith Corporation.

Analyst price targets and index fund holdings, really? Those both mean less than nothing. You really need to take a step back; you've clearly fallen in love with this idea and are seeing everything through rose-tinted glasses.

I think the analyst upgrade definitely matters more than the Vanguard stake percentage.

I’ll give you another example of a very undervalued stock that is undervalued but has problems. MoneyGram MGI IMO is worth about 1.5 billion. But they haven’t shown strong enough profitability to be sure how quickly that valuation will materialize.

MDP on the other hand just beat on earnings by almost 50 during the worst covid quarter. If you’re looking for companies whose stock got hurt by investor fear of covid destroying their business I think Meredith has clearly demonstrated they’ve adapted and deserve a better valuation.

I mean look at LYV Live Nation right now. They are going to post a huge loss this quarter and the market is pumping the stock. Even before covid the business wasn’t that profitable. I’m happy for their investors but no way that thing should be at 80 right now.

I’m just saying all that to show that I can be objective. I really think that MDP is the highest EV investment situation adjusted for the risk that I have ever seen.

Apparently being in business for over 100 years is not a liability for making a transition to digital for the Meredith Corporation because the majority of their advertising revenue is now digital and they just beat on earnings by 50 percent during the worst quarter of the pandemic

Maybe a blog with Adsense ads on it would trade at 3x earnings but it would be absurd to apply the same multiple to high level websites. that are part of complex businesses. It would be like saying Facebook stock should trade at 3x earnings because they are at Facebook.com.

Here’s what I want you to do. Approach Walmart and ask them to pay you a licensing fee to put 200+ products on their shelves under your brand and to pay you a fee every time a product sells in one of their 7000 stores in the United States.

With all due respect the paid vs.organic debate is completely irrelevant. It’s a highly complex and dynamic high level business with thousands of different revenue sources.

So to summarize, your bull argument is they had one great quarter, and they have a complex business with thousands of different revenue sources (including Walmart)? You might be interested in a company called GameStop--they're also making the transition to digital, and have a revenue-sharing agreement with Microsoft!

Gamestop $GME is where Meredith was three years ago with a much tougher business model. It's closed about 1000 stores and has repurchased 37 percent of their own shares. Here's an excerpt from the Gamestop earnings transcript:

By March, we have reduced the overall debt on our balance sheet by almost $600 million since early 2019. We have purchased 38.1 million shares since the spring of 2019, approximately 37% of shares outstanding at the time at a weighted average price of $5.21.

The repurchase of shares in the context of Gamestop is a double-edged sword that makes their EPS loss bigger per share. As of last quarter, they lost .22 cents a share with approx. 64 million shares outstanding. The actual dollar amount of the loss was only about 18 million with revenue of about 1 billion.

For them to have the same EPS that Meredith had this quarter they would have to have a profit of $200 million.

The market is giving Gamestop a market value of 3.5 billion as of now. The next year is going to be profitable for the full year of 2021 most likely. At the current valuation, I think there are easier ways to make money but successful digital games have one of the highest gross margins with high volume sales. If they can find ways to capture higher margin situations in gaming downloads or game development, they might make their investors a lot of money.

nOOB was being facetious.

But seriously, you dont have to post every little development.

I apologize. You can lock the thread if that’s OK. I didn’t mean to annoy anyone.

nah its all good. I like individual stock threads and encourage you to keep posting. just dont need daily updates. maybe wait for bigger developments, like guidance changes and quarterly reports ect.