Exploring Base, Bull And Bear Case Scenarios For New York Times – Part Two

In the previous article, we explored the base case scenario for The New York Times Company (NYSE:NYT). To summarize, we believe that NY Times stock  is fairly valued at $12.04, which is its base case valuation. In this note, we explore  the bull and bear cases that can pan, respectively,  out if management either implements its strategy successfully or fails to deliver on its plans.

Click here to see our complete analysis of New York Times

Bull Case Scenario: 36% Upside To Stock Price

In the bull case scenario, we estimate that the NYT’s stock is worth $16.45. The expected change in key drivers is as follows:

Print Circulation Division: – For the print circulation division, the key drivers affected would be the NY Times daily and Sunday circulation, and NY Times average price. Trefis projects NY Times Daily Circulation to decline at a slower pace to 832,000 by 2021 and Sunday circulation to grow to 1.3 million, primarily due to lack of competition as smaller players would either shut shop or get acquired by other companies. Additionally, since the company has been able to increase the print circulation price in the past few years, we projects that the average pricing for circulation will increase to $12.50 by 2021.

NY Times Digital Subscription Division: – The company is leveraging the popularity of its content and expanding to newer geographies such as Asia to attract new subscribers. In the bull case, we estimate that as a result of these of efforts and aggressive marketing, the NY Times’ subscriber base can grow to 2.5 million. Additionally, the company can also charge a higher fee for its premium content. We estimate that it can increase the fee per subscriber to $26 per month.

Print Advertising: – The print advertising in the U.S. is witnessing a secular decline. The company has not been able to buck the trend. In the bull case, we project that its market share can grow to 3.25% by 2021 in an industry that is shrinking in terms of players and revenues.

Online Advertising: – The key drivers for the NY Times online ads division are page views per visitors, number of unique visitors and revenue per page view. In the bull case, Trefis projects number of monthly unique visitors for the Times’ online properties will grow to 70 million by 2021 due to international expansion and expansion of existing content services. Furthermore, an increase in content will result in the growth of the number of page views and increase in the time spent on individual pages due to better engagement. This would further translate into more ads shown and, therefore, an increase in revenue per thousand-page view (RPM). Trefis expects page views per unique users to increase to 16.5 per month and RPM to grow to $36.7 by 2021.

Link To Bull Case Scenario

Bear Case Scenario: 28% Downside To Stock Price

In the bear case scenario, we estimate that the NY Times stock is worth $8.63. The expected change in key drivers is as follows.

Print Circulation Division: – We project NY Times Daily Circulation to decline at an increased pace to 550,000 by 2021 and Sunday circulation to decline to 1 million, primarily due to availability of free news services on the Internet. Furthermore, the company might not be able to increase the print circulation price, and it can decline to $11.50 by 2021.

NY Times Digital Subscription Division: – The Times  is leveraging the popularity of its content and expanding to newer geographies to attract new subscribers. In bear case, it is possible that the company’s online subscription service fails to gain traction with the newer generation of users, who are more inclined to surfing the Internet for news. We estimate that as a result of this change in user behavior, the subscriber base can grow at a slower pace to 1 million. Additionally, the company can also lower the fee for its premium content to attract more users. We estimate that if the company were to lower its fee per subscriber by 8% to $22 per month, its revenues can be significantly lower.

Print Advertising: – The print advertising in the U.S. is witnessing a secular decline. The NY Times has not been able to buck the trend. In bear case, Trefis projects that its market share can decline to 3% by 2021. Furthermore, the U.S. print ads industry can witness a steeper decline in revenues to $10.4 billion by 2021.

Online Advertising: – The key drivers for the NY Times’ online ads division are page views per visitors, number of unique visitors and revenue per page view. In the bear case, we project the number of monthly unique visitors for the online properties will grow at a slower pace to 49 million by 2021 due to lack of traction in domestic and international markets. Furthermore, a decline in growth of unique user count will result in lower growth for the number of page views and the time spent on properties. This would further translate into a decline in ads shown and, therefore, a decrease in revenue per thousand-page view (RPM). We expect page views per unique users to decline to 12.9 per month and RPM to grow, albeit at a slower pace, to $27.80 by 2021.

Link To Bear Case Scenario

We currently have a $12.04 price estimate for New York Times, which is 15% below its current market price.

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