NYT Earnings: Digital Subscriptions, Advertisements Remain The Focus

The New York Times Company (NYSE:NYT) reported its third quarter earnings on October 29th. ^[1] The quarter proved to be a strong one for the company, as digital subscriptions grew and the headwinds in advertising subsided somewhat. The main factors at play were a higher share of individual education subscriptions, a strong performance by the daily New York Times and moderating advertising losses. While digital subscriptions grew strongly, print remained a drag on the company’s overall circulation revenue growth. To this end, NYT is striving hard to improve its print subscription and retention. Also, the company has launched several new products to attract marketers and subsequently, bolster its digital advertising business.

On the bottom line front, operating costs continued to fall in Q3, in line with our expectations, driven by lower severance pay and raw material costs. The total revenues for the company increased slightly from $364 million to $367 million in Q3, while net income totaled $9 million as opposed to a loss of almost $12.5 million in the year ago period. 

We have a $13  price estimate for New York Times, which is slightly lower than the current market price. However, we are in the process of updating our model in light of the recent earnings release.

Click here to see our complete analysis of New York Times

Digital Subscriptions Witness Phenomenal Growth

Digital and Print Subscriptions together contribute almost 56% to the company’s stock value, according to our estimates. The company hit the 1 million mark in digital-only subscribers earlier in the quarter and went on to reach 1.04 million digital subscribers by the end of Q3. On a net level, this is the highest addition to digital subscribers in any quarter since the fourth quarter of fiscal 2014. The sustained y-o-y growth of 14% in digital revenues to $49 million is attributed to improved acquisition and retention tactics, increased group education and corporate subscriptions, a higher number of individual education subscriptions, and advances in international sales. These factors, along with January’s increase in home-delivery prices, helped NYT offset the impact of declining volume of print copies.

These trends in circulations will likely continue in the future, as greater efforts will be made to improve retention and to capture higher volumes in print. During the third quarter, overall circulation revenues increased 1% to $209 million and the company expects a similar growth rate for the current quarter as well.

Reduced Headwinds In Advertising

The company said that Q3 was the best quarter for advertising this year, with a revenue drop of only 2% y-o-y. NYT saw its first quarter of growth since fiscal Q1 2014, which was offset by lower advertising in International New York Times (INYT), resulting in a marginal decline of 1% y-o-y. The company’s growth stems from the luxury, technology and telecom, travel and home furnishing categories, while INYT’s decline was driven by a loss of advertising revenues in the luxury category. For digital advertising revenues, as expected, there was a drop of 5% y-o-y to $36.5 million, due to the impact from the transition to the new ad-viewability standard and tactical shift in some categories. Ad blockers are among the concern areas for digital ads, but the company vehemently opposes it and is looking at technical assistance to mitigate its effect.

NYT expects digital revenue growth to bounce back to mid-single digits for the fourth quarter, while overall advertising could see a decline in mid-single digits. ^[2] For the longer run, the company has stated its strategy to double its digital revenue to $800 million by the end of 2020 by furthering growth both in terms of digital subscriptions and advertising.

Remarkable Drop In Operating Costs, Hike In Other Revenues

Expense management in an important part of NYT’s growth strategy and it will remain so, especially in the print space. Declines in severance pay, reduced depreciation and amortization, better print distribution efficiencies, and lower raw materials and outside printing costs all contributed to a 7.6% decrease in operating costs. The company is expected to maintain firm control over operating expenses going forward, and it projects a decline of low-to-mid single digits in these costs for the fourth quarter, as the focus on lowering the legacy costs continues.

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1. The New York Times Company Reports 2015 Third-Quarter Results, NYT, October 2015 [↩]
2. NYT Earning Conference Call, NYT, October 2015 [↩]