The New York Times Company (NYSE:NYT) in its latest move to shed assets and focus on its core brand business has agreed to sell New England Media Group to John W. Henry, principal owner of the Boston Red Sox, for $70 million. While Mr Henry will acquire all the assets of the group, he does not have to assume $110 million pension liabilities of the group. The deal is expected to close by the end of September.
Revenues for the New England Media Group has been sliding and fell 7% y-o-y to $180 million in first half of 2013, as print circulation and advertising continues to struggle. The company acquired The Boston Globe in 1993 for a princely sum of $1.1 billion. However, the sale of this group has bought in less than one tenth of the acquisition price.
The sale frees up much needed cash for NYT that can be used to pursue its mobile and digital growth strategy. We believe that this strategy will be the primary driver for turning the company around, and a focus on its core brand will help New York Times grow its user base and improve subscription revenue in the future. Additionally, we believe that NYT will be better off after this sale and expect it to report revenue growth in the future.
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- What Can Drive A 10% Downside To NYT’s Stock In The Next 2 Years?
Revenues To Reflect Growth
While NYT’s core business has held on to its market share and reported growth in circulation revenue, The New England Media group has consistently lost market share and reported decline in revenues. As a result, NYT’s combined business has been reporting a decline in revenue. Once the sale is completed, we expect NYT to post growth in revenues. We believe that NYT can invest some of the cash from the sale to focus on building its core brand, The New York Times.
NYT To Focus On Digital Growth
According to the Newspaper Association of America (NAA), print circulation declined by 14% in 2012. . However, digital subscription and newspaper web audience is on the rise. While the unique visitor to newspaper websites in U.S. has grown to over 113 million in 2012, average minutes per visit has also gone up to 4.5 minutes.  This indicates that newspapers are leveraging technology effectively to engage more users. Additionally, we expect that unique visitor and subscription revenues for news papers will increase in the future due to availability of more products online, and across different devices.
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 is growing. NYT seeks to gain a strong and sticky user base in the competitive digital news landscape by delivering content across its digital platforms. Earlier this year, NYT unveiled its growth strategy that focuses on product development and subscriber acquisition along with significant new capabilities in product management, customer management and distribution. As part of its strategy, NYT is aggressively rolling out video content to bolster online ads revenues. The company stated that these new initiatives will negatively impact its operating profit by about $20 -$25 million in 2013. NYT can use the cash from sale of these assets to pursue its growth initiatives and increase its digital footprint.
The company is leveraging its brand popularity to expand abroad and rope in new digital subscribers. Cash from this sale can be used for this expansion plan and aid in growing its digital footprint outside of the U.S.
Moreover, since New York Times’ is focusing on building a strong pipeline of digital content, it can use some of the cash from this sale to improve its online content. Online content is important for NYT because if the quality of its content deteriorates, the company could struggle to maintain its digital subscribers. As a result, we believe that cash from sale of New England Media group can help boost its digital subscriber base and strengthen its online presence.
We currently estimate NYT’s number of online subscribers to 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 our price estimate. Conversely, if the number slows to around 1 million, the estimated value would decrease by 10%.
We are in the process of updating our model to reflect this sale. We currently have a $8.30 price estimate for New York Times, which is approximately 25% below the current market price.
- The American Newspaper Media Industry Revenue Profile 2012, www.naa.org [↩]
- Newspaper Web Audience, December 12 2012, www.naa.org [↩]