SPH Stock at $1.60… Is This a Buy or Sell?

With the recent SPH restructuring news, I share my personal views exactly what went wrong with Singapore's media empire.

They say the news (like SPH) is like cornflakes. 

You need it everyday but you can’t have too much. 

They are processed food, overloaded with sugar content. 

Too much of it causes indigestion.

What really caused SPH’s bust

Newspapers was once expensive to make and distribute.

Sure, “marginal cost” to make another newspaper is cheap, since it’s simply paper and ink to make one more newspaper.

But the publication business like Singapore Press Holdings (SGX:T39), or SPH runs on a high fixed cost. They had to hire good journalists and reporters, buy delivery vans, build the brand and set up a printing line.

In a tiny market like Singapore, it doesn’t make sense for another competitor to come in.

SPH gets to keep all the profits of a publication business.

What’s more is, before the world was connected by huge tubes of optic cables, people relied solely on newspapers for information.

People trust these newspapers. Journalists who publish these articles were the sole arbiters of truth.

And SPH had done a good job for many, many years.

But I’ll tell you something crucial here. All that changed when the power of journalism shifted.

You see, Facebook didn’t kill the newspapers. The internet did.

Today, some of the fastest news are reported by bloggers and third party websites. And these websites can do it because internet made information so easily accessible.

They dish out news much faster than a journalist can.

Today, journalists are one step behind the curve.

Journalists who have spent years honing their craft have lost their position as experts to the internet.

They are outfoxed in every corner of the internet — YouTube, Twitter, Facebook, Google — bloggers who write are simply more authentic (personal) and less rigid. 

In fact, when I was a research analyst in a bank, I’d scour the internet for the latest gossips about companies. 

I knew the power of the internet. 

An online article travels much faster, and further than a newspaper delivery.

Is Singapore’s media empire truly a gone case?

In 1998, SPH produced 74% of their S$900 million sales from newspaper ads and TV advertisements.

As a student, I’d never understood why people gave free newspapers at MRT stations.

Until one of my teachers told me that newspapers make money from advertising.

So they gave away as much of their newspapers as possible.

The more people read the papers, the higher the profits. 

Distributing for free or cheaply is good business.

SPH was generating massive free cash flow from advertising, that it had money to pour into stocks and properties.

But in 2020, only 30% of SPH’s sales came from advertising.

SPH made less money than it was exactly 12 years ago.

This was despite SPH’s digital newspapers have over 360 million page views and 23 million unique visitors per month.

It’s already too late.

When people shifted their attention to the internet, so did advertisers’ budgets. That Facebook and Google captured this faster than anyone else did.

And what’s even better — as an advertiser on Facebook and Google — you can track your ad’s performance. You can’t do that with the Straits Times, Lianhe Wanbao or the Berita Harian.

Dozens of online news and ad platforms gathered on the horizon, like vultures, all waiting to chew a share of the advertising pie.

And they’re all ravaging over the same corpse — SPH.

The funny thing is, rather than try to save its business, SPH moved into properties and nursing care homes instead.

That move sealed the fate of the media empire.

Market forces are simply so strong, that SPH is forced to restructure.

In investing, I make sure to understand the finer details of businesses.

I’ve never bought a single SPH share before.

And if you ask me, whether there’s value to buy SPH today, I’d say no.

Read Here: Another great Singapore empire I’m selling.

Source: Yahoo! Finance

For Diligence subscribers, SPH is in my list of 10 doomed companies I’m avoiding for 2021. You can check out other of my “victim” stocks I’m staying away here.

Sometimes, investing can be simple. 

Always here for you, 
Willie Keng, CFA
Founder, Dividend Titan

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