Mirror, mirror on the wall, which is the ugliest stock of them all? Not Knight Ridder. Not Tribune. In 2005, we saw substantial declines in the share value of every publicly traded newspaper company except E.W. Scripps. Surprisingly, the slowest horse in a slow field, losing 35 percent of its value, was the august New York Times Company.

With all eyes on a possible Knight Ridder sale and, more recently, executive changes at Dow Jones, Wall Street's disenchantment with the Times Company has been mostly under the radar. But it's real and persistent. The company also edged out Tribune (see table below) for biggest losses from a 2004 peak and has declined about 50 percent from a high in 2002.

What is wrong with the New York Times Company as an investment? As noted in earlier reports on how investors look at the newspaper business, this probably has little or nothing to do with editorial quality and news investment, still top of the line despite the bumps in recent years of the Jayson Blair and Judith Miller affairs.

Even just looking at business matters, the Times would appear relatively robust. The New York Times itself has held circulation much better than most. Charging nearly $600 a year, the paper generates by far the most circulation revenue per copy and is first in ad revenue per copy as well. Plus the Times has been a leader online.

Analysts think the trouble lies in some other indicators. Douglas Arthur of Morgan Stanley cited "the single worst ad revenue trends in the industry, led by the Boston Globe." He added that numerous misses on earnings estimates and "comparatively poor cost control" could be factors too.

In a brief research note (Word document) published January 3, Arthur seemed of two minds. He wrote that the strategy of investing heavily in The New York Times and extending the brand makes sense to him but "has –- to date –- left investors cold." At $26 per share, he considers the company substantially undervalued.

Lauren Rich Fine of Merrill Lynch (a member of Poynter's National Advisory Board) offered a similar explanation for investor sentiment, citing the missed earnings estimates and concern that the Times Company may be losing share to myriad competitors. She also said that investors "didn't like the About.com acquisition and worry that there will be more of that type."

Catherine Mathis, vice president for corporate relations at the Times Company, wrote in an e-mail response, "We were disappointed in our stock's performance in 2005." She said that the most likely explanation was that 2005 was a better year for local than national advertising. The company's newspapers get 47 percent of ad revenue from national, compared to an average 17 percent for the industry.

"Initially, the market did not react well to our acquisition of About.com," she added. But as About.com continues to show strong operating results and some "systemic cost reductions" take root, the company should be positioned to do better in 2006. (Read Mathis' full response here.)

Arthur notes that Private Capital Management, which thrust Knight Ridder into play, is the largest single Times Company shareholder with 15 percent of the stock. That might translate into some attempt to influence management, but the Times Company is considered virtually acquisition proof because family members control a majority of voting stock and 70 percent of the seats on the board.

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My year-end tally of stock performance (see table above) has other bits of news.

Knight Ridder, certainly thanks to takeover speculation, ended the year as the second best performer among the 13 companies. But even looking at its trading price ($53 a share) when PCM issued its demand that the company be sold November 1, it would have been middle of the pack, down 21 percent in 2005 and 30 percent from a two-year peak.
Scripps, even for the year, is the market favorite, thanks to the continued strong growth of its cable networks, led by Home and Garden Television (HGTV) and the Food Network.

The table above illustrates that stock declines, while particularly sharp in 2005, actually started for most companies in the spring of 2004. (The Standard and Poors index rose 5 percent in 2005 and 11 percent over the two years.)

Two of the companies look better if you switch to a two-year frame of reference. McClatchy actually posted a slight gain in 2004. Washington Post reached its two-year peak in January 2005 -- it lost only about 5 percent from the start of 2004.

I observed a year ago that Google and Yahoo together had a market capitalization (share price times shares outstanding) greater than all public newspaper companies together. Now Google itself is valued at more than $80 billion. After the battering of 2005, newspaper stocks collectively are down to a market cap of about $65 billion.

Some would argue (I have at times) that feverish focus on share price is a management mistake, especially if it leads to cuts in the news core of the newspaper to prop up short-term profit margins.  It is of note that Wall Street now seems lukewarm to the cuts too. Tribune, which made company-wide news staff cuts in 2005 and offers cost control as the center of its near-term strategy, failed to move the share price needle in the Fourth Quarter of 2005.

Maybe 2006 will further discredit the save-your-way-to-prosperity strategy so many of the companies have employed for so many years. The better bet, I'm afraid, is that reflexive cutting will continue as usual.