Professor Bezos: A Lesson in Investing
Here is a question for you: why would the founder of on-line retailer Amazon.com pay $250 million for a business that appears to be in near free-fall?
On paper — pun intended – the deal doesn’t appear to make much sense. The Washington Post, like all big city newspapers, is in a battle for survival. Its circulation has plummeted from a 1993 high of 832,000 to the current 474,000. In 2007, The Post showed a profit of $66 million; in 2012 it lost $54 million. Its legendary newsroom has shrunk from 1,000 staffers to 632.
While The Washington Post Co. is a conglomerate with a variety of holdings, including the Stanley Kaplan test prep business and a recently acquired maker of industrial furnace components, its heart and soul is the venerable but failing Washington Post. So, again, why would a Master of the Tech Universe pay a considerable premium for the company at a time when comparable print properties are selling for fire sales prices? The Boston Globe, for example, just sold for a mere $70 million.
The easy and flippant answers are vanity, hubris or a desire to flex some muscle on the national political scene. While those factors likely do play some part in Bezo’s gambit, smart observers are asking themselves, what does Jeff Bezos see in The Washington Post that others have missed?
Some of the best analysis of this deal has come not from a financial writer but from Reuters media critic Jack Shafer who points out that the newspaper business “is not radically different from the ones Bezos already owns.” Shafer notes that a newspaper is a daily miracle of coordination, manufacturing and distribution.
“No one knows more deadline deliveries and distribution than Bezos’ Amazon,” notes Shafer. “I can’t imagine what plans Bezos has for the print edition of the paper… but I’m confident he will maximize the value of the existing Post deliver system in novel ways. It would not surprise me to see him use the Post’s network of trucks and carriers to enter the local delivery business as a pilot project.”
Shafer also notes that Amazon is more than an online retailer that happens to operate on the Internet. It’s a major tech company that offers cloud-computing services and sells devices (the Kindle e-reader). That should scare the heck out of organizations that compete with The Post, and washingtonpost.com.
“Any competing web property, cable systems, mobile phone system or broadcasting operation in the Washington area should be on notice,” says Shafer. “Bezos means to use this foothold to go after the most lucrative parts of your businesses in one of the richest corners of the country. He’ll spend you to death.”
All of this will take time, but there is a precedent for a successful turnaround. The Post was last sold in 1933 – at an auction. The buyer was Eugene Meyer, patriarch of the Graham family, which is selling its controlling interest in the Washington Post Co. to Bezos. Meyer raised eyebrows by paying $825,000 for the money-losing paper. The Post didn’t start turning a profit until 1954.
As he wades through all the coming red ink, Bezos will at least enjoy the prestige and very real influence that comes with stewardship of The Washington Post. Unless you have worked in Washington, it is hard to understand the central role the paper still plays in the city’s political and government culture. It is truly a daily must-read for everyone from the security guard in a federal office building to the President of the United States. Any one in DC who didn’t already return Jeff Bezos’ calls will certainly do so now!
So what can a small investor learn from this story? The oldest lesson in the book: Patience. Jeff Bezos’ investment in a struggling industry gives us a lesson in looking beyond the valley and through the landmines; to see value beyond this week, this month or this year.
As Shafer notes, paraphrasing a line from “Citizen Kane,” Bezos could absorb $100 million a year losses for 250 years before going broke.
None of us are in that position. But most of us do have decades to invest. If we have a well-conceived plan and clear goals that we believe in, we too can ride out the dips and down drafts on the road to financial security.
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