I’m a pen and paper kind of guy. If I had my pick, I’d sit down with the newspaper or a book over reading from a screen any day.

 

#-ad_banner-#But this preference is becoming less and less common. Today, with Kindles, iPads, laptops and smartphones increasingly popular, we can now access entire libraries worth of information from a single, tiny device.

 

Newspapers and physical books have become — dare I say — inefficient. And it’s left me wondering, “What’s happening to traditional publishing? Is there still money to be made from physical publications?”

 

As it turns out, there is. But not in the way you might expect.

 

You see, when I started looking into this, I began with an assumption that turned out to be completely false.

 

These companies don’t rely on readers for revenue. Advertisers, not subscribers, drive their earnings.

 

And as I dug deeper into the business models of companies like The New York Times, The Wall Street Journal, and McGraw Hill to name a few, that insight helped me discover something even more important.

 

That is, the real reason the internet and mobile technologies have made it hard for publishers to survive is the same reason only a few publishers continue to thrive today, while others have fallen away.

 

I’ll show you what this is — and how top publishers are taking advantage of it — in just a moment. But first let’s take a look at the current state of the publishing industry, for context.

 

Consider News Corp. (Nasdaq: NWSA) for example. If you don’t know it by name, you’ll recognize it from its flagship publications: The Wall Street Journal, The Times, Barron’s, MarketWatch and book publisher HarperCollins.

 

Today News Corp. is one of the largest print media companies in the world. But its current market cap of $10 billion is a fraction of what it was just three years ago.

 

Prior to June 28, 2013, News Corp. also owned the Fox Broadcast Network and movie studio. After being spun-off, these divisions now make up Twenty-First Century Fox, Inc. (Nasdaq: FOXA), which holds a market capitalization of $75.8 billion. That’s 7.5 times larger than NWSA.

 

Investor interests drove the split, and CEO Rupert Murdoch finally conceded. It was becoming increasingly obvious to all that News Corporation’s slow-growing publishing divisions were masking the value of its more profitable divisions.​

 

The reason? Falling advertising revenue. While newspapers were once the sole advertising platform for entire cities, digital media has given advertisers new ways to reach customers. They no longer need publishers in order to profit.

 

In fact, total ad revenue across the industry dropped 48% in the nine years between 2003 and 2012, according to the Newspaper Association of America.

 

News Corp. wasn’t immune to this. Its ad revenue dropped 7% — from $4.4 to $4.02 billion — between June 2013 and June 2014 .

 

There’s a hidden upside to all this, however. Right now NWSA is cheap, debt-free and full of cash. Not to mention, its flagship publications like The Wall Street Journal and Barron’s have the benefit of loyal readership. As overall revenue for this division has declined, News Corp. has grown its digital subscription volume and price.

 

Digging into the company’s most recent earnings call reveals a lot to look forward to. As you’ll see, News Corp. is aggressively taking advantage of digital platforms for future profit.

 

As of Q2 fiscal 2015, the company’s news and information services division still accounts for $1.52 billion (67%) of its $2.28 billion total revenue​ . But its growth is in two of its smaller divisions: book publishing and digital real estate services.

 

Diversifying Revenue Streams

Revenue from book publishing increased 20% to $469 million in Q2 2015. E-book sales alone grew 14% in the quarter and accounted for 17% of consumer revenues. Analysts estimate revenues from this segment to be upward of $1.5 billion in 2015 and $2 billion by 2020. 

 

Even more impressive is the growth of NWSA’s digital real-estate services division. Total revenue from the company’s ever-expanding portfolio of real-estate websites grew 50% to $154 million in 2014.​

 

Instead of giving up on advertising revenue altogether, News Corp. is simply making use of a different platform. In addition to the legacy business of selling advertising space in its newspapers, it now sells advertising to realtors trying to list, rent and sell properties online.

 

This is a booming business, and News Corp. is taking strides to expand into the fastest growing foreign markets.

 

News Corp. owns 62% of REA Group, the leader in Australia’s profitable real estate listings and advertising space. REA Group is growing rapidly, with $232.7 million in revenue in the second half 2014, up 20% from $193 million in the second half of 2013. Analysts expect sales to grow to $503 million in 2016.

 

Today News Corp. also holds a 25% stake in PropTiger.com, boosting exposure to India’s massive real estate market, which is estimated to grow to $158 billion within the next five years.  

 

These two acquisitions give the company strong exposure to online real estate advertising throughout Southeast Asia as well.

 

In mid-November 2014, News Corp. acquired all outstanding shares of Move, Inc., an online real estate service, for approximately $950 million. Move’s network of sites accounts for nearly 98% of all online listings in the United States, with Realtor.com boasting 37 million unique visitors in January alone. In 2013, Move’s advertising revenue accounted for nearly $227 million.

Bottom line, while the legacy newspaper business is admittedly somewhat stagnant, News Corp. has a lot going for it. But the thing is, the market seems to be missing the point by mispricing the company’s stock as if it were strictly a collection of newspapers.

 

Risks To Consider: NWSA’s near 70% revenue base in print news publishing division is in steady decline. Failure to diversify into other markets could leave NWSA without a growing revenue stream to offset these losses. In addition, Move, Inc. could face serious competition from online real estate giant Zillow Group.

 

Action To Take –> News Corp.’s strong diversification in book publishing and online real estate positions it for major upside in the years ahead. The company reported 2% revenue growth for Q2 fiscal 2015, and analysts estimate 16% growth for the company by next year, nearly double the industry estimate. Shares currently trade with a price-to-book ratio of 0.79 (versus the industry average of 2.18). If it were valued more in line with its peers, shares would be about 176% higher than where they are today. The company also holds zero debt.

The point is, News Corp. is a bargain compared to industry peers like Time, Inc. (NYSE: TIME), Gannett Co., Inc. (NYSE: GCI) and McGraw Hill Financial, Inc. (NYSE: MHFI). NWSA is a solid buy candidate for any value-minded investor.

 

The massive inflow of advertising profits once led News Corp.’s CEO to describe his papers as “rivers of gold.” And it’s assets like these — along with intense customer loyalty, aggressive growth and wide diversification — that allow companies to dominate their markets for decades. We call companies these companies “Forever Stocks” because they because they are strong enough to buy, forget about and hold “Forever.” In fact, we just released out annual list of The Top 10 Stocks Of 2015. Check it out, here.