Yellow Media back from the brink?
Yellow media has lost well over 90% of it's value over the past two years as it struggles to change in the information revolution. Recently they have posted lower revenue but higher profits due to cost cutting, sale of assets and possibly a levelling off of print advertising losses.
They call it mellow Yellow
Could it be? has the battered directory publishing company finally seen some light at the end of this dreary tunnel of losses and write downs? The answer of course is, I don't know. What I do know is that YLO has been trimming the fat and selling assets like Michael Jackson. We also know that revenue has dropped 16% from this time last year, however, and it's a big however, profits did rise.
Yellow media (YLO) saw a profit of $67.7 Million in Q2 2012, that works out to about 9 cents per share. If they keep this up they'll pay off all their debts with time to spare. Which begs the question why opt to change the credit facility if you aren't up against a wall? In September 2012 YLO and its debtors (all the banks in Canada) will meet to discuss a fairness hearing about recapitalizing their debt from 1.8B to around $850M.
Normally this would be done when Chapter 11 looms but in this case YLO is in a positive situation and has the ability to make good on their commitments. What YLO wants to do is trade debt for shares. This would make sense to the debtors only if the price goes up or stays the same depending on the agreement.
After watching this stock for a few years it is in my uninformed and inexperienced opinion that the following are happening:
1. The print advertising revenue losses are approaching a levelling-off bottom. This means that everyone who wanted out of the yellow pages print side has jumped ship.
2. They have trimmed operations cost to an appropriate scale.
3. Their steadily increasing online marketing (360 solutions) side is really taking off.
The reason I am predicting this is what is happening is because of the recapitalization. YLO needs cash, but not to pay off their debtors. They need it because they have figured out a way to turn the company from a print publisher to a digital one. Paying off the debts on time leaves them with very little flexibility in the present. If they are to emerge as a strong viable business they'll need to "keep up with the jones" and make their 360 Solutions program much stronger.
Do I know for sure this is what is happening? No, that won't be clear until we see more quarterly growth like we saw in Q2. What I can say is that YLO does have quite a bit of ground to cover and a deep hole to climb out of, but if it does get out unscathed Yellow Media will be one of the worlds top website development providers and an online advertising powerhouse. If it doesn't -well Kodak and VHS tapes will have someone to talk about the good old days with.