Puzzling Over Primedia's Performance

What's it all About.com, Primedia? PRM.

A good question to ask, following the release of Primedia's second-quarter financial results Thursday morning.

The publishing conglomerate, which acquired the Internet property About.com last year in order to transform itself into a multimedia mini-AOL Time Warner AOL, issued a somewhat confusing earnings announcement that appeared, in its selective provision of financial numbers, designed to portray Primedia's business in the best possible light, though one that's arguably a tad misleading.

Jim Magrone, Primedia's investor relations chief, says any complexity in the release for the quarter ended June 30 is a reflection of the complex task the company has undertaken: to create a multimedia platform covering print, online, video and live events, and provide targeted marketing solutions for advertisers. He says the company's intention is to provide accurate information consistent with what it has given investors in the past. "As far as putting the best spin on things," he says, "show me somebody that doesn't."

At issue is how Primedia compares its results for the second quarter of 2001 with those of the corresponding quarter one year earlier. The comparison is complicated by two issues: one, Primedia's acquisition of About.com in the first quarter of 2001; and two, the company's decision to classify certain businesses as noncore. Those businesses, which Primedia will consolidate elsewhere in the company; sell or shut down, have been excluded from what Primedia is focusing on as its continuing businesses.

Continuum

Let's take a look at the continuing-business confusion first, one that pops up in one of the quarter's highlights that Primedia bullet-points at the top of its press release. The company states that in the second quarter of 2001, earnings before interest, taxes, depreciation and amortization -- a common yardstick for measuring media companies' performance -- amounted to $58.7 million, "a decline of 15% from $69.1 million for second-quarter 2000, as reported last year."

But if you look further down in the press release at the table of the company's financial highlights, you won't find that $69.1 million figure for the June 2000 quarter. In fact, EBITDA from the company's continuing business is listed as $78 million, meaning that EBITDA from continuing business declined 25%, not 15%.

What's going on? Magrone says Primedia used the $69.1 million and the 15% figures because they correspond to previous guidance the company offered. He also points to the phrase "as reported last year" in this year's press release.

In fact, if you go back and look at the July 2000 release of the June 2000 quarter's numbers, you'll find that the headlined EBITDA number for continuing businesses is $72.2 million, implying a 19% year-over-year decline. The $69.1 million number comes farther down, in a table labeled "Supplemental Historical Data."

About Last Night

Well, now to About.com's results. In a look at the company's consumer segment, New Media sales grew from $5 million in the second quarter of 2000 to $28.7 million in the second quarter of 2001. To what is owed that 474% increase? About.com -- revenue from which isn't included in the year-ago figure but is in the latest quarter. Does Primedia provide pro forma numbers for 2000, numbers that would help a rough approximation of year-over-year comparisons? No, says Magrone. As to why -- well, we'll get to that in a second.

In the meantime, let's do the year-over-years ourselves. Going back to About's second-quarter 2000 release (yeah, I know I just criticized Primedia for doing something similar, but these are the only numbers I have available), we learn that About.com had revenue of $20.1 million. Add that to the $5 million in the Primedia release and you get $25.1 million in revenue for the June 2000 quarter, implying a year-over-year increase of 14%. That's pretty good in today's rotten Internet advertising environment, but it's not 474%. Of course, that doesn't tell the whole story because, among other unknowns, there's a few million dollars' worth of intercompany sales at Primedia in each of those quarters that it's hard to account for at first glance. But it's a start.

Well, why doesn't Primedia provide pro formas? After all, other folks do -- AOL Time Warner, for example (actually, yes on the America Online-Time Warner merger, no on the Times Mirror magazine acquisition). Magrone says that since Primedia is integrating much of About.com throughout its operations, pro formas for last year aren't appropriate because they would wrongly imply About.com is a separate unit. "To look at it as a freestanding entity doesn't make sense," he says.

That separation issue takes us, oddly enough, to the question of which specific Primedia businesses are noncore. For the most part, the company isn't telling -- for the sake of its employees; Magrone explains that certain of them haven't been told that their operations are, in fact, going to be sold, closed or absorbed elsewhere in the company. But the company does volunteer that one of the noncores is IndustryClick, which is being integrated into other operations at the company. In other words, the in-the-process-of-integration IndustryClick is lumped with a group that's being treated on an apples-to-apples basis, but the in-the-process-of-being-integrated About.com isn't.

How About.com them apples, huh?