New York Times To Benefit From Continued Digital Subscription Growth In Q2
The New York Times Company (NYSE: NYT) is scheduled to report its second quarter results on Wednesday, August 8. The company reported solid Q1 results, as both earnings per share and revenues came in ahead of market expectations. NYT has seen impressive subscriber figures in the past few quarters, particularly digital subscribers, partially offsetting the print circulation pressure. This surge in the newspaper’s subscriptions is largely being driven by the political climate in the U.S. In Q1, the company’s digital-only subscription revenues made up 23% of the total revenues, while digital-only subscriptions rose to 2.78 million, up 25% y-o-y. In addition, NYT’s adjusted earnings per share also grew 70% y-o-y.
New York Times’ stock price has increased nearly 30% over the course of 2018, primarily due to the unprecedented growth in digital subscriptions since the U.S. Presidential election. Our $21 price estimate for NYT’s stock is now slightly below the current market price. We have created an interactive dashboard on what to expect from NYT’s 2018 earnings which outlines our forecasts for the company’s Q2 and fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. We expect NYT to continue to post an increase in earnings and revenue growth rate in Q3, driven by the positive momentum of digital subscriptions.
Q2 Guidance
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For Q2, NYT expects subscription revenues to rise in the mid-single digits, with digital-only subscription revenue expected to increase by approximately 20% y-o-y. Overall advertising revenues are expected to fall in the low teens relative to a year ago. The company has also guided for a high-single digits decrease in digital advertising, which could return to solid growth in the third quarter. In addition, operating costs are forecasted at a low-single-digit increase (and adjusted operating costs rising in the mid-single digits), driven by continued investment in marketing and other efforts to drive incremental subscription growth.
Fiscal 2018 Outlook
In fiscal 2017, NYT reported unprecedented growth in digital subscriptions, which helped the company stabilize its total subscription revenues. The company’s total subscription revenues increased 14.5% year-over-year (y-o-y) and surpassed $1 billion for the first time in the company’s history, with digital-only subscription revenue growing strongly at 46% y-o-y. Overall, NYT’s online subscriber base has grown from 800,000 in 2013 to 2.6 million in 2017 (with further strong growth in all quarters of 2017). In addition, the digital-only subscriptions revenue grew 26% y-o-y in the first quarter of 2018 as well. Going forward, we estimate NYT’s online subscriber base to be its biggest value driver, and consequently, forecast this growth to pick up in the coming years and reach 4 million by 2022. As of now, we forecast the company’s subscription revenue for 2018 to grow by 20%. We also forecast advertising revenue to decline slightly and reach $560 million in 2018, on the back of the continued decline in the display (print) advertising and traditional website display advertising.
In 2018, we estimate NYT’s operating profit to reach $230 million, based on lower expected operating expenses and higher expected special items costs such as restructuring charges, pension settlement expenses, and post-retirement benefit plans. Based on the above estimates, and our adjustments to operating expenses, we expect the company’s interest expense to reach $20 million. In addition, we expect NYT’s adjusted net income to grow 15% y-o-y on the back of an increase in severance cost, non-operating costs and tax adjustments estimates for 2018.
As NYT’s legacy print business is seeing steady declines, and the company is already in a transition phase of turning digital, the boost from the election season could help strengthen its readership and boost earnings. In fact, NYT’s traffic data suggests that site visits have averaged out in the last six months, which indicates that the company is still able to retain new online readers.
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