Can Growing Digital Subscriptions Help New York Times End Fiscal 2018 On A Strong Note?
New York Times (NYSE: NYT) is scheduled to announce its fiscal fourth quarter results on Wednesday, February 6. NYT’s performance has been mostly above its guidance and market expectations so far this year, driven largely by the political climate in the U.S. In the first nine months of fiscal 2018, the company saw weak print advertising trends, with print advertising revenue declining 5% y-o-y. However, digital advertising revenues increased slightly during the same period. Overall, the company’s total revenues grew 5% y-o-y to $1.2 billion in this period, driven by more than 20% y-o-y growth in digital-only subscription revenues to $295 million. NYT reported unprecedented growth in digital-only subscribers, which grew by 24% y-o-y to 3.1 million. This increase in new subscribers led to growth in NYT’s overall subscription revenues, which contribute more than half of the company’s total revenues. The company’s total subscriptions now stand at more than 4 million.
New York Times’ stock price increased more than 20% over the course of 2018, primarily driven by impressive digital subscriber growth. Our $25 price estimate for NYT’s stock is slightly below the current market price. Our interactive dashboard on What To Expect From NYT’s Q4 outlines our forecasts for the company’s Q4 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 Q4, driven by the positive momentum of digital subscriptions and the U.S. midterm elections.
Q4 Guidance
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Going forward, NYT expects its total subscription revenues to increase in the mid-single digits compared to the fourth quarter of 2017, with digital-only subscription revenue expected to increase in mid-teens. The company also expects its advertising revenues to be approximately flat y-o-y, while digital advertising is expected to increase in the mid-teens. In addition, the company’s other revenues are expected to increase 40% y-o-y, largely due to anticipated growth in its commercial printing operations. Also, NYT’s adjusted operating costs are likely to increase in the mid-single digits, driven by higher marketing costs.
Fiscal 2018 Outlook
Overall, NYT’s online subscriber base has grown from 800,000 in 2013 to 3.1 million in Q3 2018. Going forward, we estimate NYT’s online subscriber base to be its biggest value driver and forecast this growth to pick up in the coming years and reach 4.2 million by 2022. As of now, we forecast the company’s subscription revenue for 2018 to grow more than 10% y-o-y. We forecast advertising revenue to decline a little more than 10% y-o-y to around $480 million in 2018, on the back of the continued decline in the display (print) advertising and traditional website display advertising. We also estimate NYT’s operating profit to reach $240 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 NYT’s adjusted net income to grow about 14% y-o-y.
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