Growing revenue from digital ventures propelled Torstar Corp. to a razor-thin profit in the third quarter, though the downward trend in advertising returns continued unabated.
The boost to the newspaper publisher’s bottom line came largely from the company’s 56-per-cent stake in VerticalScope, a company that operates hundreds of online forums catering to niche interests, and which drove a 32-per cent increase in revenue for the company’s digital ventures segment.
Across the company, which publishes newspapers including the Toronto Star and the free Metro dailies, digital revenue was up 17.9 per cent, excluding the impact of closing digital marketing firm Olive Media in 2015. But revenue from print advertising, which remains a much larger source of revenue, fell sharply again, down 16.1 per cent from a year earlier.
A step forward with digital revenue, which now makes up about 19 per cent of the company’s total revenue, provides a glimmer of hope in an otherwise gloomy stretch for Torstar. Investors have been alarmed at the precipitous decline in revenues at newspapers everywhere, and Torstar’s share price, which was as high as $4.10 less than a year ago, closed at $1.61 on the Toronto Stock Exchange on Tuesday.
“I think we felt we made some progress this quarter,” said David Holland, president and chief executive officer of Torstar, on a conference call with analysts. “Torstar's earnings base is increasingly digitally oriented.”
Digital revenue is expected to keep growing, as VerticalScope continues to look for acquisitions and shifts to more lucrative direct-sales advertising.
But the painful trends in print advertising “have continued early into the fourth quarter,” said chief financial officer Lorenzo DeMarchi. To cope, the company has been aggressively cutting costs, shedding some 570 jobs that are expected to save $34-million annually starting next year.
Torstar is also dramatically scaling back its spending on Toronto Star Touch, the sleek daily tablet edition of the company’s flagship newspaper, which launched in the fall of 2015. After cutting 26 tablet-related jobs and slashing the app’s marketing budget, Torstar plans to spend just $3-million on Star Touch next year, down from $11.5-million in 2016.
Mr. Holland said the Star Touch readership continues to grow “modestly,” and the company remains committed to maintaining the tablet edition, though “it’s certainly not where we hoped it would be.”
“There may be, in time, fewer and fewer circulated print copies, and this gives our readers a place to go. So laying that foundation now makes a lot of sense to us,” he said.
Net income for the third quarter, including some discontinued operations, was $1.4-million, or 2 cents per share, compared with a loss of $164.3-million or $2.05 a share in the same quarter last year, when Torstar took a large writedown on its Metroland Media Group.
Operating revenue was $181.7-million, down 9.8 per cent from a year earlier.
“We expect sentiment to remain negative given the declining revenue trends in the core business and a lack of visibility on cash returns on recently invested capital,” said Tim Casey, an analyst at BMO Nesbitt Burns Inc., in a research note.
At Metroland, which publishes an array of community papers as well as local dailies such as the Hamilton Spectator, revenue was down 8.4 per cent due mostly to declining print advertising, though revenue from flyer distribution climbed 1.3 per cent.
Torstar also sold its Vaughan printing facility and the land around it for $53.6-million in the third quarter, after outsourcing printing of the Star to Transcontinental Inc. earlier this year. The sale left Torstar with $69.8-million of cash and $18.7-million of restricted cash and no debt.Report Typo/Error