NYT Earnings Preview: Revenue Growth From Digital Initiatives In Focus

The New York Times Company (NYSE:NYT), one of the newspaper  heavyweights in the U.S., is set to report its first-quarter earnings on Thursday, April 30^th. While the secular downtrend in print media across the U.S. has impacted NYT’s topline, NYT is focusing on offering a comprehensive suite of digital content, which includes both a video and digital print offering, to boost its flagging business. Overall, we see print advertising revenues continuing to decline during the quarter and believe that New York Times’ digital subscription business will be key for the company’s profitability during the earnings announcement. We expect this result will give us insights into how NYT is faring in its endeavors.

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Outlook for Q1 2015

The company expects circulation revenues to increase by 1.0%-1.5% in first quarter of 2015 compared with the first quarter of 2014, as benefits from its digital subscription initiatives and the increase in print subscription prices bear fruit. Total advertising sales in the Q1 FY15 are expected to decrease at a mid-single digits rate compared with the Q1 FY14, primarily due to a challenging business environment in the print ads business. Operating costs and adjusted operating costs are each expected to be roughly flat in the first quarter of 2015 compared with the first quarter of 2014. In addition, the Company expects the following on a pre-tax basis in 2015:

• Results from joint ventures: Break even to $5 million,
• Depreciation and amortization: $60 to $65 million,
• Interest expense, net: $40 to $45 million, and
• Capital expenditures: $35 million to $45 million.

Digital Subscription Expected To Grow

According to our estimates, the NYT’s print circulation and digital subscription division contributes over 52% to its stock value. While the NYT’s daily print circulation continues to decline, its digital subscriber base is gaining traction. In 2014, NYT’s paid digital subscriber base grew by 35,000 to 910,000, and now accounts for nearly 20% of NYT’s circulation revenues. The company continues to add content, especially video content, to its properties in an effort to attract more users. Additionally, the NYT continues to leverage its brand popularity to rope in new digital subscribers, especially in new regions where it has expanded recently. We expect the NYT to show further improvement in online subscriptions in the quarter, and we will continue to watch this metric closely during this earnings announcement.

Digital Ads To Grow

The online advertising division, which is the third largest division of NYT and makes up 23% of its estimated value, posted an 11.76% year-over-year increase in revenues to $178.83 million in 2014. The primary reason for this growth was NYT’s native advertising product – the paid post. NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. Although, it still represents a relatively modest portion of our total digital advertising revenue, we expect it to increase substantially as the company adds more content and regions to its digital services. Additionally, the company continues to experiment with custom advertising and has increased its ads offering on mobile devices such as Tap NYT, which is a full-screen, self-propelled tapable story. We estimate these initiatives will improve user experience and boost the number of unique visitors to NYT’s website and expect the unique visitor count to grow to ~60 million by the end of our forecast period. In this earnings announcement, we continue to look for improvement in digital ads as the company continues to roll out new ad formats and content across its properties.

Print Subscription To Stabilize

Over the past few quarters, NYT has been able to leverage its brand name and popularity to raise print subscription prices, which has helped the company to stabilize its print subscription revenues and boost margins. We expect this trend to continue in Q1 (especially since January is the month in which NYT increases its print subscription price), and print subscription revenue to stabilize. Currently, we forecast NYT Times weekly price to increase marginally to $12.50 by 2021.

Print Advertising Revenues To Decline

Print ads are the second largest division of NYT and makes up for ~24% of its value by our estimates. What was once the cornerstone of the business in terms of generating revenues, is now witnessing a fall due to changes in advertising behavior. Advertisers are allocating more of their budgets for online ads than for print ads. As a result, the U.S. print ad spending has declined from $22.8 billion in 2010 to approximately $15.9 billion in 2014. Overall, we think that this trend is likely to have continued in Q1 and expect print advertising revenue to decline.

We currently have a $9.64 price estimate for NYT, which is approximately 30% below the current market price.

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