Even though Yellow Media is right-sizing the ship, there's no guarantee that management will be able to navigate through the industry's choppy waters.
In its latest salvo to turn the struggling company around, management is laying off 10 per cent of its work force – a way of saying goodbye to people who are accustomed to the world of printed phone books, and to create budget space to hire those with IT and digital backgrounds.
Layoffs are never easy, but if any company can justify them, it's Yellow Media. Not only does the company need people with new specialized skills, it also needs to shed costs.
Yellow Media's digital model is comprised of its traditional classified business with listings online instead of in phone books, as well as a new business, dubbed the 360° Solution, that helps small businesses advertise their products and services online.
While the management likes to point out that its digital revenues are growing, accounting for 43 per cent of the company's total sales last quarter, that line omits a key part of the equation. Print revenues are falling faster than those from digital are growing, dropping 23 per cent in the third quarter from the year prior. And they're expecting to keep tumbling.
All in, total revenue was down 12 per cent from the year prior, and earnings before interest, taxes, depreciation and amortization dropped 26 per cent over the same period. Not pretty.
Yellow Media is caught between a rock and a hard place. For years the media company lured investors with its lucrative dividend, but it took on boatloads of debt to pay those distributions. That burden ultimately came back to haunt the company. Consumers' shift from print to digital came quickly, and once revenues started to drop, Yellow Media had to sell its best assets, including classified publisher Trader Corporation, to plug its holes. The big problem is that the funds from those sales went to pay back debt, not to the company's coffers, where they could be used to fund the digital transformation.
Now Yellow Media is stuck trying to turn itself in a new direction, but like many media companies, its dwindling resources are squeezing its ability to fund its transition.
This isn't to say that Yellow Media isn't trying. Former chief executive officer Marc Tellier left last year, and a new CEO was named just a few weeks back. The company has also re-sized its print product in order to slash costs, nominated digital specialists such as BlackBerry Inc.'s former chief operating officer to its board, and initiated a major debt and equity restructuring that reduced its total debt burden by about $1.5-billion, giving its original creditors and equityholders new shares and warrants.
All those things are necessary, and the company's stock price has responded accordingly, more than doubling since the new shares started trading last December. (At $14.96, they've still got a long way to go before the new warrants become valuable. Their exercise price is $28 per share.)
But if revenue and cash flow keep falling, there's only so much cost-cutting the company can do before management has to gut its business, leaving them with few ways to generate sales. All of that leaves Yellow Media in a race against time.
Tim Kiladze