It’s important to think geographically when you assess the current state of YP industry turmoil. A few observations might be useful when trying to align the conflicting signs of growth in some geographies with an incredibly bearish financial profile of US publishers. “Exporting” the US stock market behavior really needs some navigational aid.
unique US market dynamics
This morning the market reacted with a vengeance to the revised guidance of RHD, sending the already pummeled stock down by another third of it’s already trimmed price. I listened to the call, and the triple whammy of 1) a material revision for 2008 ad sales (ad revenue decrease of “middle single digits”), 2) the prudent decision to cancel dividend, and 3) the surprise resignation of their executive leader of RHD Interactive, were clearly troubling to the analysts on the call.
The RHD leadership team presented some useful commentary that helps keep this situation in geographical context (I’m paraphrasing here, reader emptor).
The souring of SME advertiser sentiment was the reason cited for revised 2008 guidance. This appears to be, in (large?) part, driven by unique US market dynamics. The American mortgage and lending crisis and fuel price surges have driven recessionary conditions - and these are very harshly felt in the housing and financial services sectors. Much of RHD’s ad performance strength has been in regions that benefited greatly from a robust housing, lending and moving market. Because of RHD’s unique footprint in robust growth markets such as Nevada, Arizona and Florida, this position has turned on itself to become a driver in ad spend decline.
a unique doorstep battleground in the US
Aside from the economy driving a meaningful wedge into the situation, it’s also important to recall the unique competitive print directory nature of the US market. (It’s common to hear mention of one household having 6 or 7 competing directories land on their doorstep.) In periods of budget tightening by SME’s, the competitive price dynamics of this situation can further exasperate these situations. A decline from one publisher may often come from price “opportunism / desperation” of competing directories selling to the same advertiser.
Ad revenue decline from one US publisher may not be driven by the loss of the advertiser to other media, the statistic may be exaggerated by the shifting of SME spend to a cheap, opportunistic offer from a competing publication.
out of america
Several factors reinforce that the thrashing we’re witnessing in the US public markets should be decoupled from an industry-wide observation. The US financial market indicators cannot readily be “exported”. You can also look at this in the reverse mode - we’ve witnessed solid performance in the Canadian and Australian markets for YP - two resource rich geographies that have enjoyed very different fundamental economic environments of late.
It was also very interesting to sit in the audience at the recent London Kelsey Conference, where two European Financial analysts gave a surprisingly calm view of the valuation challenges facing YP, as blogged about by John Kelsey.
[…] In the world of local experts, all of whom I respect, no one takes the extreme view: See Greg Sterling, John Kelsey, Perry Evans. The consensus is that we’re looking at a slow decline — while they ought to get it in gear, YP companies have valuable assets (revenue, sales force, customer relationships) and time to react. […]
Left by Time, tide and the print YP « Think Locally on March 7th, 2008