NYT’s Online Business Growth Is The Key To Earnings

The New York Times Company (NYSE:NYT) is set to report its second quarter earnings on August 1. The secular decline in the print advertising industry has forced NYT to increase its online product offering and to migrate its content online. In Q1 2013, NYT unveiled its growth strategy to address the decline in revenues across its division.

In this earnings announcement, we want to see to what extent this strategy helped NYT in acquiring new subscribers and bolstering its revenues. Moreover, during the quarter, NYT concluded the bidding process for the sale of New England Media Group. We are awaiting any information on the sale of these assets in this earnings announcement. Additionally, we are looking for updates on its online ads division, which reported a decline in revenue in Q1.

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Update On Sale Of New England Media Group

NYT concluded the bidding process for the New England Media Group, which includes the Boston Globe and Telegram & Gazette on June 27. While six groups submitted the proposal to buy these assets, the board has yet to announce the results of this bidding. We believe that NYT needs to wrap up this disinvestment process soon so that it can free up cash for its mobile and digital strategy in order to focus on its flagship brand. In this earnings announcement, we are awaiting information on the sale of these assets.

Focus On Digital Subscriber Growth

According to our estimates, NYT’s print circulation and digital subscription division contributes nearly 45% to its stock value. While NYT’s daily print circulation continues to decline, its digital subscriber base continues to gain traction. In Q1, NYT’s paid digital subscriber base grew by 45% y-o-y to over 700,000. During the quarter, NYT took prudent steps to bolster its digital subscriber base. It launched a revamped mobile website to offers easy access to desktop website content. ^[1] Additionally, NYT continued to leverage its brand popularity to expand abroad and rope in new digital subscribers.

We expect NYT to show further improvement in online subscriptions in the quarter and continue to watch this metrics closely during this earnings announcement. We believe that growth in digital subscriber base will be the primary driver for revenue growth going forward.  We expect the company to reach approximately 1.45 million digital content subscribers by 2019, 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.

Online Ads Revenues

Online Advertising is the third largest division of NYT and makes up 24% of its estimated value. In the previous earnings announcement, NYT stated that digital advertising suffered from pricing pressure due to programmatic buying and glut of available ad inventory. However, NYT is experimenting with new ad formats to monetize its desktop and mobile content. Additionally, NYT rolled out video content for its properties to increase user engagement which will help in bolstering online ads revenue. In this earnings announcement, we are closely following NYT’s revenue per page view (RPM) metrics. If NYT can leverage its online content to attract more users to its website, this can increase NYT’s RPM going forward. Currently, we expect RPM to grow from $21.40 to over $26, by the end of our forecast period.

We currently have a $8.2 price estimate for New York Times, which is approximately 30% below the current market price.

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1. See NYT’s Revamped Mobile Website Will Strengthen Its Offering [↩]