Recently the rumor mill has been quite unkind to Yellow Media (YLO.TO / YLWPF.PK). For some reason, rumors have sparked that a deal announced a few months ago where the company will sell off its Trader.com operations, might be in some rough waters. Where the rumor came from, I am unable to find out, but it is being held as one of the explanations as to why the stock has been rocked lately.
Besides all the problems the company has run into recently, which you can read in an article titled,Yellow Media tries to reassure nervous investors, I’d like to discuss a common topic on this blog; trends.
A forward looking market is going to take into account what it sees and/or perceives on the horizon. What lies ahead? As we all know a shift away from using yellow page directory books has been in place for over 10 years now. With more people using the Internet and having it in more places (phone) makes yellow pages directories obsolete. A percentage of the population will still turn to this service because they do not rely on the Internet and, above all else, everyone still receives the directory at their house, which means it could possibly be used.
Being ‘available’ is a very big thing in the yellow page directory world. How does a sales agent justify an advertisement in such a directory? One of the major selling points is that every house that has phone service is going to receive an annual edition of the directory. This ensures that even though usage might be dropping, at least distribution is not.
Recently the city of San Francisco may have accelerated the trend away from yellow page directory services. Last week it enacted an opt-in law for city residents wishing to receive a yellow page directory book. If you want one, you’ll need to ask for one. Other cities have passed opt-out ordancinces, but that took effort on the part of the household to actually state they did not want a copy. The opt-in law places the demand driver on the user. If he or she doesn’t act, the yellow pages doesn’t come.
If this trend catches on it will be devastating for a company like Yellow Media. Even though the company has been proactive in moving its business online, it still depends on its hard copy yellow pages revenue to make its current business model function. The transition to online sales is in process, but it going to take years to ramp up. Turning a large ship in an opposite direction is not always the fastest endeavor.
Previously I expressed my bullish views about Yellow Media given their dividend yield and online business growth. The current inhospitable climate climate for yellow page distribution is making me rethink my original stance. It’s not easy to catch a falling knife without being cut. Yellow Media is a falling knife and I do not know where it will stop. Until the company is able to generate positive news that changes investor sentiment, I am of the opinion that it is better for investors to look and not touch. It’s okay to take a stance on the sidelines.
Disclosure: No Position