Real Estate Ad Worries: Is the Category Due For a Fall?

By: Jennifer Saba Classified real estate revenue has been the one saving grave for newspaper results over the past several quarters yet Wachovia Equity Research Senior Analyst John Janedis believes the category will soon show cracks.

In a report released this week, Janedis notes that real estate advertising has ?dramatically increased its share of total newspaper advertising? jumping from 6.5% in 2000 to a forecasted 11.3% in 2006. In 2005, the firm estimates that the category contributed $1.4 billion to the companies in Wachovia?s coverage universe.

Thanks to real estate revenue, many companies have been able to report low to mid-single digit overall ad growth as opposed to flat or down.

The category also outperforms Internet ad revenue in terms of contribution to overall growth -- real estate classifieds (print and online combined) represent twice the amount of revenues, according to the report.

If the category falters, which is forecasted, it could seriously impact overall revenue and earnings per share. ?A decline in 2007 could further weigh on newspaper ad growth, assuming other important categories like autos, movies, and department stores do not recover, or help wanted deteriorates further,? he wrote.

While many companies have recorded double digit increases in the category over the past six to seven months, they are starting to hit difficult comparisons.

The companies in Wachovia?s universe most exposed to any downturns in real estate advertising are The New York Times Co., Journal Register Co., Tribune, and McClatchy. ?On average for the group,? the note explained, ?every 5% change in real estate revenues is equivalent to a 0.7% change in EBITDA.?