The New York Times Company (NYSE:NYT) posting a second quarter loss from continuing operations of $0.57.  Its operating income included a $0.85 non-cash write-down for About.com, without which the firm would have reported earnings of $0.14 per share, a year-over-year increase of $0.03. The primary driver we were watching this quarter was digital subscription growth, which posted an impressive increase of approximately 13% quarter-over-quarter. New York Times (NYSE:NYT) competes with other newspapers and online media sources such as AOL‘s (NYSE:AOL) Huffington Post and News Corp‘s (NASDAQ: NWS) Wall Street Journal and New York Post.
Our estimated stock value for New York Times has increased to $8.55 from $6.56 due to an improvement in the companies net debt position. This was primarily due to infusion of $63 million cash from the sale of Fenway Sports Group. The new cash leaves the company with greater liquidity and allows the company to better manage is debt obligations.
With an ever increasing amount of content consumption occurring online, it was essential that New York Times posted an increase in its digital subscribers. It reported that the total digital subscription base across all of its sites was approximately 532 thousand at quarter end, compared with 472 thousand on March 18, 2012.
The primary driver of this increase was a decision taken by the company to decrease the number of articles a non-paying user could read to 10 from 20. We view this trend as good news for investors because it highlights the value of the content that the company provides, which is the primary way in which the company attracts users. Users could have easily switched to other free news sources for their content when the restriction was implemented, but instead chose to stay with New York Times and pay for a subscription.
We currently estimate that the number of NYT Online Subscribers will increase to approximately 1.3 million by the end of our forecast period, but if the total number of subscribers increases to approximately 1.6 million, we would see 5% upside to the Trefis price. Conversely, if the number of digital subscribers slows to approximately 1 million, we estimate that New York Times’ value would decrease by 5%. You can assess the impact that digital subscriber growth has on New York Times’ value by using our tool below:
Downside to our estimates to digital subscriber growth could occur if the quality of New York Times’ content deteriorates or if the quality of content on free websites improves. In either of these situations, users might not have an incentive to pay for a subscription because they could get the same, if not better content, on other free websites.
We were also keeping a close eye on the company’s advertising revenue figures; an 8% decline in print advertising and a 4% decline in digital advertising, primarily due to declines at About.com. We expect that print advertising revenues for the company will continue to decline until the end of our forecast period primarily because of a secular downward trend in US national print ad spending. Since print advertising is the second largest segment of the business, a faster than expected decrease in national print ad spending could mean further downside to our price estimate. For example, if US national ad spending decreases to approximately 2 billion, it would decrease the price of the company by 10%.
With national print ad spending and newspaper circulation on the decline, New York Times’ brand value along with its digital subscriber growth is central to the business’ health going forward. The company’s strategy of decreasing the number of free page views to increase subscriber growth paid off during the quarter, and it must continue to maintain this growth rate justify our current valuation. We currently have a $8.55 price estimate for New York Times, which is approximately 10% above the current market price.Notes: