The New York Times Company (NYSE:NYT) is set to report its first quarter earnings Thursday, April 25. The secular decline in the print advertising industry has forced New York Times to increase its online product offering and to migrate its content online. We expect NYT to unveil its strategy for trimming costs and growing revenue in this earnings announcement. Moreover, NYT’s online subscription business has grown by over 50% in 2012; therefore, during this quarter’s earnings announcement, we will continue to focus on NYT’s digital subscriber growth, which will be the primary driver for revenue growth going forward.
Q4 CY12 Results
- How Much Of NYT’s Value Comes From Digital Subscriptions?
- How Important Is The Digital Advertising Business Becoming For NYT?
- How Much Upside Can An Increase In Digital Subscribers Drive For NYT?
- What Can Drive A 10% Downside To NYT’s Stock In The Next 2 Years?
- How Is NYT Expected To Grow In The Next Five Years?
- What Drove NYT’s Revenue And EBITDA Growth In 2015?
NYT posted a strong fourth quarter result and reported 5% growth in total revenue, which caused the stock to jump on the day of its earnings announcement. While advertising revenues continued to decline (down 3.1% in Q4 y-o-y), the firm saw strong growth in its circulation business. Circulation revenues grew 16% for the quarter driven by strong growth in digital subscribers. The company also reported a year-over-year decline in operating profit to $44 million in Q4 CY12, compared with $90 million in 2011. However, the most encouraging item was that the company posted healthy growth in their digital subscriber base, which grew to 668,000 subscribers, an increase of 13% from Q3 CY12. ((8-K, SEC))
Growth And Profitability Strategy In Focus
Mark Thompson, who was appointed as the new CEO in November, plans to unveil his strategy for boosting profitability and increasing revenue during this earning announcement. In the previous earnings announcement, we did get a glimpse of things to come. The company announced that it planned to optimize its operating processes and increase profitability. In the upcoming announcement, we would like Mr. Thomson to lay out a more specific plan for trimming costs.
Moreover, since its core print advertising business is declining, NYT needs to diversify its revenue streams. NYT had hinted that it plans to increase its pay digital products, international footprint and mobile content, but we would like the company to announce a detailed plan rather than just disclosing a high level strategy. This earnings, we will be closely monitoring the actions taken by the company towards these initiatives. Specifically, we would like to know about measures that NYT has taken to increase its International business.
Watching Digital Subscriber Growth
We expect NYT to show improvement in online subscriptions. Digital subscriptions will be its primary business driver going forward. In Q1 CY12, NYT reported that its digital content subscribers increased from 278,000 in 2011 to over 668,000 in 2012. We expect the company to reach approximately 1.45 million digital content subscribers by 2019, by the end of our forecast period.
However, we believe these numbers are only achievable if NYT is able to maintain the quality of its content offerings since it faces stiff competition from competing sites like Huffington Post. If Thompson’s growth strategies are unsuccessful and NYT digital subscribers only grow to 1 million by 2019, we would see approximately 10% downside to our price estimate.
Steps To Increase Online Advertising Revenue
Online Advertising is the third largest division of NYT and makes up 24% of its estimated value. We believe that this division is at an inflection point and will be a key business driver going forward. According to IAB, online ads revenue increased to $37 billion in 2012, a 15% increase over 2011 revenues. 
We expect management to announce its strategy explaining how it plans to monetize its online subscription business for ads and capture some share of the growing Internet ads revenue. NYT has stated that it is in the middle of developing strategic video content for its properties to increase user engagement which will help in increasing online ads revenue. If NYT can leverage its online content to attract more users to its website, this can increase NYT’s revenue per page view (RPM) going forward. Currently, we expect RPM to increase from $21.40 to over $26, by the end of our forecast period.
Print Advertisements Business Expected To Decline
Print ads division is the second largest division of NYT and makes up for nearly 30% of its value by our estimates. With the advent of the Internet, print ads business has been on a decline since most advertisers have increased spending on online ads. Print ads division of NYT has not been able to buck the trend and continues to report decline in revenue. We expect the trend to continue in this quarter too.
However, we expect NYT to report an increase in revenues as it was able to increase the subscription fee for its print circulation and online subscription division. The increase in subscription fee when combined with increasing subscriber base will augur well for NYT’s revenue and will offset the decline in revenue from prints ads divisions.
We currently have a $8.2 price estimate for New York Times, which is approximately 10% below the current market price.Notes:
- Internet Ad Revenues Again Hit Record-Breaking Double-Digit Annual Growth in 2012, April 16 2013, www.iab.com [↩]