New York Times Must Deliver Digital Growth

The New York Times Company (NYSE: NYT) is set to release its earnings later this week, on Thursday, July 26. The company blew past earnings estimates during the first quarter on strong digital subscriber growth, in part by decreasing the limit on the number of the free articles that can be read by a user on its website. ^[1] We will continue to focus on New York Times’ digital subscriber growth since we expect future growth of NYT revenues will come from an its digital subscriptions. The New York Times primarily competes with other content providers and news media companies such as Yahoo! (NASDAQ: YHOO), News Corp (NASDAQ: NWS) and CBS Corporation (NYSE: CBS).

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Since digital subscriptions will be the primary driver of the business’ value going forward, it is imperative that New York Times shows some improvement in online subscriptions. We expect that the company will reach approximately 550,000 digital content subscribers by the end of 2012, and about 1.2 million subscribers by 2018, the end of our forecast period.

However, we believe that these numbers are only achievable if New York Times is able to maintain the quality of the content it offers for its digital subscribers. Due to the increase in the quantity of free content available to users today, the New York Times must provide superior content to entice users to pay for a digital subscription. It has a strong brand that will help it maintain or gain market share as the print news media industry shrinks, but it must differentiate itself from other free news sources if it is to increase the number of its digital subscribers. If the company fails to do this and growth in the digital media subscription business slows to only 750,000 subscribers by 2018, it would have a 10% downside impact on New York Times’ stock price.

Another number to keep a close eye on during this earnings announcement is the page views per unique NYTimes.com visitor. If this statistic has declined because the company decreased the number of pages or articles that a user can visit a month for free (and these users switched to other websites for their news instead of getting a subscription), it would have a negative impact on the company’s value. For example, if visits to NYTimes.com slow to 5 per month per unique user by 2018, it would have a 10% downward impact on the company’s valuation. You can use our tool below to analyze the impact that different monthly visits per unique visitor would have on New York Times’ value:

We currently have  a $6.56 estimate for New York Times’ stock price, which is approximately 10% below the current market price. You can view our full model here.

1. The New York Times‘ Rise in Circulation Revenue, Forbes [↩]