Dow Jones Bidding War Heats Up! Wait . . . Maybe Not.

Posted by: Jon Fine on July 20, 2007

It must be killing those searching for a Dow Jones alternative to Murdoch that ‘Net entrepreneur Brad Greenspan is one of the only options out there.

From his letter to shareholders, released today after the markets closed, detailing his plan to get Dow Jones stock over $100 (!). One key aspect of his plan is … starting a cable financial news channel, which, despite the existence of CNBC and the upcoming launch of Fox Business Channel, Greenspan sounds certain will be a smashing success:

Using an estimate of 188,600 average viewers per day in 2009, we believe the Dow Jones financial news channel could generate $456 million in revenue. Assuming an operating margin of 33.3%, this translates into operating profits of approximately $152 million in 2009.

With the major cost of content creation already being paid for by the WSJ print publication, start-up costs and losses are projected to be less then $60 million dollars in 2008 (vs. $75 million for FOX Business News).

Um …

There is the small matter of the existing deal the WSJ has with CNBC. Also—correct me if I’m wrong—the Wall Street Journal is a print product, not a video product, so how the WSJ will significantly save on a cable channel’s “content creation costs” is a bit obscure to me.

(Disclosure: I go on CNBC as a guest commentator frequently. I assume I would not be going on a WSJ-branded cable channel as a guest commentator at all.)

Also, he’d significantly beef up WSJ’s online video presence.

In 2009, we would expect WSJVideo to generate 10 billion video views for the year. Using a $30 CPM rate, the venture will generate $243 million in revenue and $135.5 million in operating profits. With WSJ currently averaging $90 CPMs for its video ads and demand growing, we see upside in our projections.

The net result of these two initiatives:

The two strategies above would generate $288 million in incremental operating profits in 2009. Assuming stable performance from the existing businesses, our growth initiatives would more than double Dow Jones’ 2009 EPS to a projected level of $3.91. From 2007 to 2010, we estimate that our growth initiatives would help generate a compound annual earnings growth rate of 60%.

Taking an average from a variety of valuation methods for the projected 2009 performance — including a DCF valuation, EV/EBITDA valuation, and PEG ratio valuation — we believe Dow Jones stock would be worth more than $100 a share. This would represent a significant increase over the $60 a share being offered by News Corp.

Suffice it to say: You can safely put me in the “dubious” camp.

 

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