With advertisers pulling back on spending, executives at Dotdash Meredith's parent company say they won't hit their revenue targets for the year.
In a letter to shareholders, IAC/Interactive Corp. CEO Joey Levin said the New York-based media company, with major operations in Des Moines, has seen a "rapid pullback" in ad spending. He said ad rates declined in June compared to the same period last year, despite year-over-year ad revenue growth in the previous five months.
Overall, Levin told shareholders Tuesday, Dotdash Meredith's goal of 15%-20% growth in digital revenue for 2022 is "unlikely." He said IAC, an incubator for several tech companies, will slow hiring and decrease spending.
But, he added of Dotdash Meredith's recent performance: "We're not overly vexed."
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Formed in a December acquisition that merged digital-first Dotdash and the formerly Des Moines-based Meredith Corp., Dotdash Meredith reported a $27.5 million operating loss for its most recent quarter, which ended June 30.
The performance was better than the prior quarter, when the company lost $56.2 million. Compared to those first three months, Dotdash Meredith's most recent report shows that its digital business moved from a slight loss to a slight profit, while the company's print business lost less money than it had before.
The company is best known for its legacy Meredith magazine titles, which include Better Homes & Gardens, People and Entertainment Weekly. In acquiring Meredith, Dotdash CEO Neil Vogel bet that he could make those venerable businesses more profitable by placing them on new, faster-loading websites, charging more for fewer ad placements, dedicating more staff to product reviews and assigning more stories designed to draw readers from Google searches.
'It's the internet, that's how it goes sometimes,' CEO says, explaining delays
From the time of the $2.69 billion purchase, Vogel said that 2022 would be a reset year for the company, as Dotdash Meredith hired more employees, invested in the new websites and thinned out veteran staffers with severance and early retirement packages. He said he expected the company to grow once it took the new sites live and hired a new team of employees.
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But in an email to the staff Wednesday, Vogel said the transition process is taking longer than he expected. The company hoped to have moved all of the Meredith publications to new websites by now. Instead, the company has transitioned about three quarters of the sites and doesn't expect to launch the rest until the end of September.
"Our migrations have taken longer than we initially thought to ensure we did them properly," Vogel said. "It's the internet, that's how it goes sometimes, no matter how hard you try. What matters is that you try."
Vogel also told employees that Dotdash Meredith's revenue had dropped in July for the second straight month.
For the period of April, May and June, the company reported $10.9 million in operating income for the digital business, up from a $1.9 million loss the previous quarter. That growth was largely driven by digital ad revenue, which increased 15% to $157.6 million from the prior quarter.
Executives have said the websites will struggle as they move to new platforms, but the faster sites will eventually draw more readers. Ultimately, Google will rank the sites higher in its algorithm, leading to more growth, they predict.
"The benefits will show up more in 2023 than 2022," Levin said.
Print losses less than in previous quarter, ad sales up
The print editions of the magazines reported a $19 million loss in operating income. That was still better than the prior quarter, when they reported a $38.3 million loss.
Dotdash Meredith does not break down spending by business segment. But a Des Moines Register analysis indicates that the company spent about $280.2 million on the print side of the business last quarter, about $48 million less than it had from January through March.
Subscription revenue was down 17%. Performance marketing revenue was down 90%. Advertising revenue was down 2%.
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At the same time, newsstand revenue was up 14%, and a line item the company calls "project/other revenue" was up 28%.
The figures from the first quarter aren't directly comparable because the company cut print editions of seven titles in April and May. For those titles that are still in print, Levin told shareholders, advertising sales increased 3%, year over year.
In Vogel's words: "Print is (fire emoji) - after making very hard decisions, followed by real investment, our titles are now growing again after years of decline."
Costs continue for merger-related expenses
In addition to the digital and print businesses, Dotdash Meredith reported an $18.5 million loss under the line item "other businesses." The company's report did not disclose in detail what that includes, other than "unallocated corporate expenses." The company reported a $16 million loss in the segment for the first quarter.
Dotdash Meredith also has continued to accrue costs for changes to the company in the wake of the merger. In addition to closing print operations for some magazines, the company shut down the show People TV and offered early retirement packages to veteran staffers.
The company reported $13.7 million in restructuring costs in its most recent quarter, about $12.6 million of which went toward "severance and related costs."
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Those payouts came after the company spent $22.4 million on restructuring costs in the first quarter, which included $20.5 million in severance and related costs. In its latest report, the company said it expects another $2.3 million in restructuring costs by the end of 2023.
Dotdash Meredith also disclosed that, on July 1, it made an $83.1 million change-in- control payment - an accounting term for payouts to executives who are leaving the company, sometimes with contracts that guarantee the business will pay much of their outstanding salary and benefits.
The company made a similar payment for $60.1 million in December. Executives disclosed they expect to make another, much smaller payment of $4.3 million between October and December.
Dotdash Meredith also disclosed that they have had to shell out tens of millions this year for an underfunded pension plan in the United Kingdom. The company paid $25 million in the first three months of the year, followed by $43.6 million in the second quarter.
The pension plan's trustees also bought life insurance to guarantee payments to participants on July 28, leading to a $134 million actuarial loss. Dotdash Meredith disclosed that it would record this loss in a future earnings report.
"They're taking on a lot of indigestion," said Francine McKenna, an accounting lecturer at the University of Pennsylvania Wharton Business School.
Since disclosing its most recent financial report Tuesday, IAC's stock price has dropped about 4%, to $75.13 a share Thursday.
This article originally appeared on Des Moines Register: Dotdash Meredith reports losses, slower transition with ad decline