A Snapshot Of New York Times And Our $7.50 Valuation

The New York Times (NSYE:NYT) is one of the leading newspapers in the United states, with approximately 750,000 daily print subscribers and 550,000 digital subscribers. But the company has experienced a steep decline in revenues over the past three years as the secular decline in the print industry has had an adverse effect on the company’s core business. For example, the firm’s revenues decreased drastically from $2.4 billion in 2008 to $2 billion in 2009, primarily due to the large fall in print advertising revenues. Total revenues have stayed around $2 billion since 2009, as the fall in print advertising revenue has not been made up by other divisions. Overall, we see print advertising revenues continuing to decline over our forecast period, and think that New York Times’ digital subscription business will be key for the company’s profitability going forward. 

See our complete analysis of New York Times here

Print And Digital Subscription

According to our estimates, New York Times’ subscription businesses make up for approximately 40% of the company’s value. The segment generated approximately 45% of the company’s revenues in 2011, and we expect this proportion to continue over our forecast period.

However, within this segment, New York Times is offering two products which have drastically different industry dynamics. For example, New York Times’ core business product, the print newspaper, has seen a 30% decline in subscriptions since 2008, due to readers preferring to use the Internet and mobile phones for their news consumption. However, due to this trend among consumers, the digital subscription business has grown rapidly to 550,000 users in 2012, from around 300,000 subscribers in 2011.

Despite these trends, New York Times’ print circulation is expected to bring in greater amount of revenues throughout our forecast period. This is primarily because we expect that New York Times will be forced to lower their digital subscription prices because of the competition that it faces from free online news sources such as Huffington Post, CNN, BBC etc. Overall, we don’t think that this division will be a driver of growth going forward, meaning that New York Times will have to enter new markets if it wants to grow the business.

Print Advertising Will Continue to Decline

While print circulation revenue has taken a hit over the past three years, New York Times’ print advertising revenue trends are the real worry. What was once the cornerstone of the business in terms of generating revenues, is now witnessing a fall due to advertisers moving online for their advertising needs. The U.S. national ad spending has declined from $6 billion in 2008 to approximately $4 billion in 2011, and is expected to decline to around $3 billion by 2019.

Overall, we think that this trend is likely to have more downside potential than upside potential. The primary driver of our opinion is the fact that in 2011, approximately 25% of advertising spending was on print advertising, even though the average consumer only spent 7% of his or her total time with print media. ^[1] Over the longer term, we expect the time spent with print, to decline and think that the spending on print advertising will be around the same share as the time spent with print media. This would mean a 72% decline in total print advertising, ominous news for New York Times’ print advertising division.

Mobile Advertising Opportunity Not Lucrative for New York Times

While many companies have yet to drive significant revenues via the mobile platform, we think they will be able to do so over the coming 2-3 years. Our opinion is again backed by the fact that advertising spending per type of media will over the longer term, match the proportion of total amount of time that a user spends with a particular type of media. We are optimistic about the mobile advertising opportunity overall, because users spend approximately 10% of their media consumption time on mobile phones. But mobile ad spending is only around 1% of total ad spending. If this metric gets to a point where advertisers spend the same proportion of money on mobile advertising to total users’ spend time, the total ad spending on mobile phones would reach approximately $17 billion.

While a large opportunity in mobile advertising exists, we think that it will be extremely difficulty for a stand alone newspaper such as New York Times to capture a substantial chunk of it. Overall, we think that mobile ad opportunity will largely be captured by the operating system leaders in the mobile industry, primarily because of their ability to control the application ecosystem on which newspapers such as the New York Times are dependent. Therefore, while a mobile presence is required to appeal to digital subscribers, we don’t necessarily think that advertising on these devices will be as lucrative for New York Times as print advertising was. Therefore, even though we expect New York Times’ revenue per page view to increase, the online advertising division is still a small contributor to New York Times’ value at around 25%.

We  currently have a $7.5 price estimate for NYT, which is approximately 10% below the current market price.

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1. Internet Trends Deck, KPCB [↩]