It hasn’t been a good month for Yellow Media Ltd. (TSX:Y) as investors have begun to question the company’s transformation from old school media to digital content.
Yellow Media is known for owning the yellow pages, a business investors have assumed is going the way of the dodo for years now. The company is well aware of this and is taking action. Earnings are being reinvested into its digital assets and it hired a CEO with experience turing a traditional media company into one focused on digital content.
Yellow Media owns some of Canada’s top websites including 411.ca, RedFlagDeals.com, and ComFree. Its whole digital portfolio attracts 11 million pageviews a month.
The transformation is going well. Digital revenues now represent 68% of the total top line, growing 14% year-over-year. It has also used its digital properties to help stem the losses from the print division. Sales reps offer packages that include both print and digital advertising.
These efforts have done a nice job stabilizing the whole company. Total revenues only fell 1.4% in 2016, totaling $818 million. It appears Yellow Media is close to a tipping point. The whole company should start to grow again in 2017. Yet investors are pricing it as though it’s about to die.
In a world where tech stocks often come with huge valuations, Yellow Media shares are incredibly cheap. After falling 47% thus far in February, the company trades at just 7.1 times adjusted earnings and just 2.9 times free cash flow.
