The New York Times Company (NYSE:NYT), one of the leading news media companies in the United States, posted encouraging numbers in its fourth quarter results. The stock rose 3.5% during the day’s trading session and gained another 4% after hours as earnings per share (EPS) increased to $0.76 from $0.34 in 2011. However, it is important to note that excluding special items EPS from continuing operations declined to $0.32 in 2012 versus $0.39 in 2011.
While advertising revenues continued to decline (down 3.1% in Q4 and 5.9% for 2012 on a yearly basis), the firm saw strong growth in the circulation business. Circulation revenues grew 16% for the quarter and 10% for the year driven by strong growth in digital subscribers. We think this is a good sign as the digital business is key to New York Times’ success going forward. Another encouraging factor was the improvement in gross margins which rose to 59%. Due to the increasing mix of digital revenues, the company was able to cut back on newspaper production costs during the year. 
As we’ve stated previously, we expect New York Times to continue to focus on its digital subscription and online advertising products as they will help compensate for declining revenues from print advertising.
Digital Subscriber Growth Encouraging
The secular decline in the print newspaper industry combined with increasing online content consumption led to growth in digital subscribers during the fourth quarter. The company’s paid digital subscriber base grew to 668,000, an increase of almost 150% from the previous year. The primary driver for this increase was the firm’s paywall which reduced the number of articles a non-paying user could read per week to 10 from 20.
The continued increase in NYT’s digital subscribers highlights the value of the content that the company provides. If the New York Times is able to maintain the quality of its content, it could maintain its digital subscriber growth rate over the next few years.
The digital subscriber count is an important revenue growth driver for the company. We currently estimate the number of NYT online subscribers will increase to around 1.4 million by the end of our forecast period. However, if the number increases to 2 million, we would see 10% upside to the Trefis price. Conversely, if the number of digital subscribers slows to around 1 million, we estimate that value would decrease by 10%.
You can assess the impact that digital subscriber growth has on New York Times’ stock value by using our tool below:
Brand Value Key
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 its business health going forward. The firm faces immense competition in the online newspaper industry and will have a hard time attracting and retaining digital users if it is unable to maintain the quality of its content. The company’s strategy of decreasing the number of free page views to increase subscriber growth paid off during the quarter, but we will have to wait and see if the company will be able to grow its digital subscriber base at higher rates in the coming quarters.
We currently have a $8.20 price estimate for New York Times, which is approximately 10% below the current market price.Notes: