NYT Pre Earnings: Revenue Growth From Digital Platforms As Print Ads And Subscription Suffer

The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., is set to report its fourth quarter earnings Tuesday, February 3^rd. As the secular decline in print advertising and publishing continues, NYT is focusing on offering a comprehensive suite of digital content, which includes both a video and digital print offering. In this earnings announcement the focus will be on the growth in New York Times’ digital subscriber base, which is expected to drive revenue growth in the future. Furthermore, since the company continues to expand to newer regions to boost its flagging revenues, we expect this result will give us a fair indication how it is faring in its expansion endeavors. We will closely monitor both factors in this earnings announcement.

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Outlook for Q4 2014

The company expects circulation revenues to increase by 1.0%-1.5% in the fourth quarter of 2014 compared with the fourth quarter of 2013, as benefits from its digital subscription initiatives and the increase in print subscription prices bear fruit. Total advertising sales in the Q4 FY14 are expected to decrease at a mid-single digits rate compared with the Q4 FY13, primarily due to a challenging business environment in the print ads business. The company expects to incur a charge of $9 million in non-operating retirement expense in the fourth quarter. In addition, the Company expects the following on a pre-tax basis in 2014:

• Results from joint ventures: loss of $1 to $3 million,
• Depreciation and amortization: $75 to $80 million,
• Interest expense, net: $53 to $57 million, and
• Capital expenditures: $35 million.

Digital Subscription Expected To Grow

According to our estimates, the NYT’s print circulation and digital subscription division contributes over 52% to its stock value. While the NYT’s daily print circulation continues to decline, its digital subscriber base is gaining traction. In Q3, Digital subscription grew by 13.3% to $42.8 million, and now accounts for nearly 20% of NYT’s circulation revenues. The company continues to add content, especially video content, to its properties in an effort to attract more users. Additionally, the NYT continues to leverage its brand popularity to rope in new digital subscribers. We expect the NYT to show further improvement in online subscriptions in the quarter, and we will continue to watch this metric closely during this earnings announcement.

Digital Ads To Grow

The online advertising division, which is the third largest division of NYT and makes up 25% of its estimated value, posted a 16.5% year-over-year increase in revenues to $38.2 million in Q3. The primary reason for this growth was NYT’s native advertising product – the paid post. The company only introduced Paid Posts in January 2014 but is expected to end the year with more than 30 clients. NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. Although it still represents a relatively modest portion of our total digital advertising revenue. Additionally, the company continues to experiment with custom advertising and has increased its ads offering on mobile devices such as Tap NYT which is a full-screen, self-propelled tapable story. We estimate these initiatives will improve user experience and boost the number of unique visitors to NYT’s website and expect the unique visitor count to grow to ~67 million by the end of our forecast period. In this earnings announcement, we continue to look for improvement in digital ads as the compnay coninues to roll out new ad formats and content across its properties.

Print Subscription To Stabilize

Over the past few quarters, NYT has been able to leverage its brand name and popularity to raise print subscription prices, which has helped the company to stabilize its print subscription revenues and boost margins. We expect this trend to continue in Q4, and print subscription revenue to stabilize. Currently, we forecast NYT Times weekly price to increase marginally to $12.50 by 2021.

Print Advertising Revenues To Decline

Print ads are the second largest division of NYT and makes up for nearly 24% of its value by our estimates. With the advent of the Internet, the print ads business has been on a decline since most advertisers have increased spending on online ads. This division has not been able to buck the trend and continues to report a decline in revenue. We expect the trend to persist this quarter too.

Expansion Plans In Focus

One of the key strategies for the company has been expansion to new geographies, especially south-east Asian countries that have a large population of English speakers. The company continues to roll out local content in these regions to attract users for its services. We believe that local content together with world class international content syndicated through its web portal should enable the company to make some headway in regions where it has expanded recently. In this earnings announcement, we are closely monitoring the growth in NYT’s revenue from international markets.

We currently have a $10.85 price estimate for New York Times, which is approximately 17% below the current market price.

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