Scripps: Old-School Media, New Moves

This column was originally published on RealMoney on Jan. 11 at 11:18 a.m. EST. It's being republished as a bonus for TheStreet.com readers. E.W. Scripps(SSP Quote) has made all the right moves in its transition from old-school media (newspapers, magazines, cable) to new media.

Last week John Janedis of Bank of America upgraded E.W. Scripps to buy, citing "SSP's online strategy, which should help drive longer-term earnings growth relative to its peers." I agree with John, and that is why I recommended SSP as a buy back in October at $46.34 (in the Internet Review). I remain bullish on SSP and will take you through my reasons.

First of all, rather than paying $100 billion for a struggling dial-up ISP, the company paid $525 million for Shopzilla, a comparison-shopping engine. The word "comparison" alone implies there will be synergies for Scripps across all of its properties, as online comparison shopping is quickly taking the lead as the primary source of retail information for both online and offline shoppers.

I believe Shopzilla will play a key role in providing upside for Scripps' stock. The company bought Shopzilla at 16 times 2005 EBITDA, in comparison with other recent deals such as Shopping.com for 21 times 2005 EBITDA. On the basis of BofA's estimates, Shopzilla is growing revenue by over 100% over the past three quarters vs. about 30% for Shopping.com (owned by eBay (EBAY Quote)).

Shopzilla Devours Competition Its revenue growth is stomping on Shopping.com's

Source: Company filings, Banc of America Securities LLC estimates.

Also, according to Alexa, over the past three months Shopzilla has outgrown Pricegrabber in reach per million users by 24% and surpassed it in page views per user by 30%. These two factors combined confirm my belief that Scripps got a great deal on Shopzilla, and an increased valuation of Shopzilla will lead to upside in its stock price.

Outreaching Pricegrabber Scripps's unit has longer arms and more eyes than Pricegrabber

Source: Alexa.com

A further shift of its traditional media outlets to the online model will also help drive the stock in 2006. According to comScore Media Metrix, Scripps currently attracts about 37 million unique visitors per month, putting its sites' traffic among the top 10 Internet sites. As Shopzilla and this new push toward the Internet is a somewhat novel initiative for SSP, I believe the company can only improve its integration and potential synergies moving forward.

Beyond that strong Internet presence, Scripps' old-line media continues to do well. This includes its HGTV channel, which is distributed to more than 89 million U.S. households and is one of cable's top-rated networks. HGTV increased its operating income 38% over the prior year in the last quarter. Along with HGTV, SSP owns a host of local and regional newspapers that continue to show operating profits despite the downturn in the newspaper business.

Finally, Scripps' recent addition to the S&P 500 is also a positive note. BofA's Janedis puts a $53 price target on Scripps, which I believe we could see by the end of the first quarter.