Metro International recently issued a third-quarter trading update/profits warning. It warned of deeper than expected operating losses of £6.5m (versus £4.5m loss last time).
Whilst disappointing these results aren't all together surprising:
1. Freesheet newspapers are an expensive business
2. Freesheet newspapers is an uber competitive business (i.e there are lots of them)
2. Freesheet are (completely) dependent on single revenue stream - advertising
3. Advertising revenues are under intense pressure from freesheet competitors and digital channels which has led to lower ad rates and reduced margins particularly in mature/maturing markets (Sweden etc)
4. Being FREE isn't enough (consumers have lots of free alternative media/ents channels).
5. International businesses are challenging to manage. They require good people, strong organisation and investment.
That said Metro is underlyingly a good business.
Our strategic advice would be to immediately stop being a collector of countries/markets 'presence' business and transition the business into an integrated aggregator of a young global audience. The value is in audience relationship and (multi-channel) delivery and its potentially enormous. Metro has some 20 million readers.
But it's rapid growth and its low(est) cost model has left it painfully under resourced and weak. Therefore, more than anything Metro needs (a lot of) love and attention. It needs to build capacity. It needs to invest in talent.
Top management team (as we have written here before) is capable. Per Mikael Jensen (CEO) is a strong manager and a talented media man. Denis Malamatinas (Chairman) is charismatic and experienced. They are backed by the Board and the investors.
The good news is that Metro has in fact done the difficult bit (built a brand, established an audience etc) and now its time to consolidate and leverage.
We think they have a great chance.
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