24/7 Wall St.

McClatchy Co. (NYSE: MNI) shares have been hit by another wave of selling. So far this year, its stock down 46% to $7.09, as well as off 60% in the past year. While the newspaper company announced relatively solid earnings, concerns continue about the number of its digital subscriptions and its $858 million in debt.

McClatchy’s numbers looked similar to those of several other newspaper chains. Revenue fell 7.1% to $225 million. Ad revenue dropped 11% to $125 million, though digital only ad revenue rose a modest 10%. Circulation revenue benefited from digital subscriptions, but the total number of these is still fairly small.

The company’s management commented:

Audience revenues were $89.9 million, down 0.6% in the second quarter compared to the same period in 2016. Digital-only audience revenues were up 6.7% due to subscriber growth and pricing strategies implemented throughout 2016. The number of digital-only subscribers ended the quarter at 91,000, representing an increase of 13.8% from the second quarter of 2016.

The 91,000 are spread across what McClatchy calls 30 media properties in 29 markets. Among these are several very large newspapers, including the Miami Herald, Kansas City Star, Sacramento Bee, Charlotte Observer and Fort Worth Star-Telegram. For the McClatchy paywall programs to be major contributors to revenue, the 91,000 figure will have to increase substantially. This is particularly true because of the decline in print revenue and modest increase in online advertising.

McClatchy lost $70 million last quarter, of which $46 million was equity investment impairments. A better way to look at its prospects was that operating income was $12 million. However, that was before $20 million in interest expense. The relationship between those two numbers is too close for some investors.

Craig Forman, McClatchy’s new president and CEO, said in the company’s earnings release:

We plan to continue our digital audience growth in the second half of the year by providing relevant journalism to our readers and viewers while explaining the benefits of subscribing to our digital products. We also will learn more about our customers as they begin using the new audience platform, and as a result we can engage more meaningfully with our subscribers.

Part of the engagement comes from McClatchy’s growing online audience. Average total unique visitors to the company’s media sites hit 66 million, up 14.6% from the same quarter a year ago. This expands the number of people McClatchy can market to advertisers. In addition, it needs to sharply boost its digital subscriptions if it hopes to improve both top and bottom lines.