Scripps Network Interactive Worth A Look

By Will Ashworth | March 11, 2009 AAA

On July 1, 2008, newspaper and television station owner E.W. Scripps (NYSE:SSP) spun off its cable and online properties into a new publicly traded company, Scripps Network Interactive (NYSE:SNI), on a one-for-one basis. Scripps Network Interactive seems to be flourishing as an independent company while its former parent is slowly sinking into the old-media abyss. Clearly, E.W. Scripps shareholders should have sold their own company's shares by now. The question for them is this, should they hang on to those they received in the spinoff last summer.

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Still Growing
Its fourth quarter earnings came out February 5, 2009 and they were very respectable considering the economy. Total revenues grew 3.5% to $412 million year-over-year and earnings per share (EPS), excluding non-cash impairment charges, were up 5 cents (10%) to 55 cents. Revenues for the entire 2008 year were $1.6 billion, up $200 million or 10.0% from 2007 and EPS, excluding non-cash impairment charges, grew slightly, up 7 cents to $1.63. The non-cash impairment charges mentioned included a reduction in net income of $244 million in 2008 for Shopzilla goodwill and $382 million in 2007 for uSwitch goodwill and other intangible assets. The Shopzilla write-down is a clear sign consumers aren't opening their wallets.

Growth At A Reasonable Price
Its Lifestyle Media properties include a 7.25% ownership stake in FOX-BRV Southern Sports Holdings, 69% of the Food Network and 94% of Fine Living while its Interactive Services online properties include Shopzilla, BizRate and uSwitch. Both segments generated positive revenue growth in 2008. However, in the fourth quarter, while the Lifestyle Media segment increased revenue 7%, its Interactive Services delivered a 10.5% decline. Things are going to get worse. On a positive note, in the fourth quarter, Lifestyle Media delivered a 3.3% increase in advertising revenue and 20.7% increase in affiliate fees. Although the revenue from affiliate fees is only 28% of Lifestyle Media's total, they are growing nicely.

Stock Performance Past 52-Weeks Vs. Peer Group

Company 52-Week Change Market Cap
Scripps Network Interactive (NYSE:SNI) (53%) $3.3B
Discovery Communications (Nasdaq:DISCA) (40%) $4.3B
Walt Disney Co. (NYSE:DIS) (46%) $30.8B
Time Warner (NYSE:TWX) (45%) $28.7B
Viacom (NYSE:VIA.B) (62%) $8.8B
EBay (NYSE:EBAY) (57%) $13.39B
As of market close March 10, 2009

On an annualized basis, its stock has done the worst of the six over the past eight months. That's completely unwarranted. A quick look at the trailing 12-month EBITDA in relation to total debt for each of these companies shows Scripps Network Interactive has the best Debt/EBITDA ratio at 12-times. It has a stated trailing P/E of 138. However, if you take the true EPS for 2008 (excluding impairment charges) of $1.63, you have a far more respectable P/E of 12. (Learn to evaluate stocks quickly in our Financial Ratios Tutorial.)

Odds and Ends
While the clear drivers of its business are the HGTV and Food Networks, responsible for 68% of revenues, its digital sales have grown from $41 million in 2005 to $82 million in 2008 and I'd guess they'll pass the century mark by 2011. Its Food Network and RecipeZaar websites are first and sixth respectively in terms of unique visitors to food sites in January of 2009, according to Nielsen. Also Shopzilla ranks sixth in terms of unique visitors to retail sites in January of 2009. While Shopzilla has had a tough go of late, its European business has grown revenue at a 3-year compound annual growth rate of 110%. Totalling $37 million in 2008, it could become more important soon enough. (Read more in CAGR: The Good, The Bad And The Ugly.)

Bottom Line
Net cash provided by continuing operating activities increased $167 million (43.5%) in 2008. Coupled with a small amount of long-term debt ($80 million) and I believe you have a company that can withstand whatever 2009 brings.

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