When investors think of tech companies, probably the last that comes to mind would be the publisher of the yellow pages. But despite still stubbornly printing a very 20th-century book each year, Yellow Media Ltd. (TSX:Y) knows its future is in the digital space.
It owns dozens of Canada’s top web destinations, including YellowPages.ca, the Comfree/DuProprio low-commission real-estate sites, RedFlagDeals.ca, Canada411.ca, and 411.ca, among others.
Collectively, these websites attract some 440 million visits from 11 million unique visitors each year. To put that into perspective, only six million Canadians visit Yelp annually while five million visit Expedia.
Yellow Media also provides digital marketing services which help both small and large companies get their message out online. It can boast heavyweight customers such as McDonald’s, Procter and Gamble, and Ford, among many others.
It used to be where companies would just ditch the yellow pages and never look back, choosing to spend their marketing budget online. This trend has slowed significantly. In 2014, Yellow Media lost approximately 100,000 customers. It lost just 3,000 in its most recent quarter.
Unlike some web companies, Yellow Media trades at a very reasonable valuation. Shares are just 11.6 times trailing earnings. The price-to-earnings ratio dips to 8.7 if we look at 2017’s expected bottom line.
The balance sheet is also getting much better. The company has net debt of just $300 million after repaying some $100 million in 2016. The company owed nearly $900 million as recently as 2012. It also generates plenty of free cash flow, earning $112 million in the last 12 months.
Many investors think Yellow Media is a relic of old times. This is not the case.
