New York Times Earnings Preview: Digital Space To Drive Top Line
The New York Times Company (NYSE:NYT) is set to report its third quarter earnings on Thursday, October 29th. While revenues through digital circulation and advertising have seen strong growth over recent quarters, the global downtrend in print media domain has affected the company adversely. For Q3, although print advertisement and circulation revenues are likely to decline, the digital space is likely to maintain its position and prove to be a harbinger of growth again. Continued momentum in digital subscriptions should boost revenues, though it will be offset by declining print volumes.
However, the company expects digital ad revenue growth to be weak due to a tough comparable period and the new ad viewability standard which it is trying to incorporate. [1]. On the profitability side, operating costs are likely to continue their steady decline due to decreasing print volumes, resulting in better operating margins in the third quarter.
We have a $13 price estimate for New York Times’ stock, which is slightly below the current market price.
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Margins Likely To Improve
During the second quarter of 2015, the decline in operating costs outpaced the overall revenue declines, as operating costs fell by 4.9% y-o-y to $344 million due to workforce reductions, print distribution efficiency and a fall in raw material costs, triggered by a decline in print revenues. We expect that the company’s expense management measures continued during the third quarter, and expect a similar fall in operating expenses in the Q3 report.
Digital Subscriptions To Continue Growth Momentum
With the company hitting the one million mark recently for its paid digital subscriber count, a record industry-wide, we expect revenues through digital subscriptions to maintain double-digit growth in the third quarter. The year-on-year growth through digital subscriptions in Q2 was around 14% to $47.5 million. The company mentioned in its outlook that it expects an addition of more than 30,000 new subscribers through the digital platform by the end of Q3 as it continues to improve the content delivered through mobile apps and offer products at different price points. [1]. We forecast NYT’s online subscribers to increase to close to 1.05 million by the end of 2015.
Growth In Digital Ads
Digital advertising revenues, which represent about 32% of total advertising revenues, grew by 14% in Q2 on account of growth in mobile and video platforms, Paid Post and programming buying channels. Revenues through digital advertising are likely to increase in Q3 as well, albeit at a lower rate as advertisers are now paying only for impressions actually viewed by users. The company mentioned that this will only have a short-term impact, while in the long run the ad viewability standard should contribute more to its revenues. [1]. Also, relationships were initiated with Apple, Facebook and Starbucks in the first quarter of the year, which should provide some benefits in the third quarter by helping the company reach out to large new audiences. We forecast the average number of unique visitors to grow to 42.4 million by the end of 2015.
Decline In Print Subscription Revenues
Diminishing subscriptions from the print segment – despite the increased home delivery prices – resulted in 2.3% y-o-y fall in revenues in the previous quarter. The company is focusing on retention of subscribers on the print side by improving the delivery service experience, using customer analytics, and is positive about stabilizing the revenues in the long run. However, while the decline in print subscriptions will continue in Q3, the growth in total circulations is expected to be similar to the last quarter, at about 1% y-o-y.
Print Ad Revenues To Continue To Collapse
Print advertising revenues declined 13% y-o-y last quarter, due to a fall in advertising for The New York Times’ international newspaper and foreign currency effects. Owing to the general movement away from the print advertising space, the loss in print ad revenues will likely continue. We forecast U.S. print ad spending to fall to $14.6 billion by the end of 2015 and further to $11.6 billion at the end of our forecast period.
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