NYT Earnings Preview: Profit Margins Set To Improve

The New York Times Company (NYSE:NYT), one of the leading newspapers in the United States, is set to report its fourth quarter and full year earnings Thursday, February 6. As we reiterated in the past, the secular decline in print advertising has pushed New York Times to move away from its core competencies as a print publisher and move to a digital product offering. Therefore, during this quarter’s earnings announcement, we will continue to focus on New York Times’ digital subscriber growth, which will be the primary driver for revenue growth going forward. Additionally, the company sold off the New England Media Group (NEMG), which includes properties such as The Boston Globe, BostonGlobe.com, Boston.com, Worcester Telegram & Gazette, Telegram.com and GlobeDirect, in Q3. ^[1] We expect the company to report a marked improvement in profit margins with the completion of this sale.

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Margins And Revenues To Improve

NYT’s core business has held on to its market share, and its circulation revenue has grown. However, due to the NEMG’s declining markets and revenue, NYT’s combined revenues were declining. With the sale of the NEMG complete, we expect NYT to post growth in revenues this quarter. Additionally, the Q3 results indicate that the NEMG was eroding NYT’s profits since it posted wafer thin margins in the first nine months of FY13. Additionally, this division posted an operational loss in 2012. We anticipate that NYT’s margins should significantly improve as it is no longer burdened with the additional cost of running a unprofitable division.

Digital Subscription

According to our estimates, NYT’s print circulation and digital subscription division contributes over 45% to its stock value. While NYT’s daily print circulation continues to decline, its digital subscriber base is gaining traction. In Q3, NYT’s paid digital subscriber base grew by 28% year over year, albeit at a lower rate. The company continues to add content to its properties in an effort to attract more users. Additionally, NYT continued to leverage its brand popularity to expand abroad and rope in new digital subscribers. We expect NYT to show further improvement in online subscriptions in the quarter, and we will continue to watch this metric closely during this earnings announcement.

Advertising Revenues In Focus

Print ads is the second largest division of NYT and makes up for nearly 28% of its value by our estimates. With the advent of the Internet, the print ads business has been on a decline since most advertisers have increased spending on online ads. This division has not been able to buck the trend and continues to report a decline in revenue. We expect the trend to persist this quarter too.

Online Advertising Revenue Under Watch

Online ads is the third largest division of NYT and makes up for nearly 25% of its value by our estimates. In the previous earnings announcement, NYT stated that digital advertising suffered from pricing pressure due to programmatic buying and a glut of available ad inventory. Nevertheless, NYT launched new ad formats to monetize its desktop and mobile content in Q3, and it continues to roll out video content and invest in content for its properties to increase user engagement and bolster online ads revenue. In this earnings announcement, we will closely follow NYT’s online ads revenues and revenue per page view (RPM) metrics to ascertain whether these measures have helped the company to post growth.

We currently have a $8.33 price estimate for AOL, which is 40% below its current stock price.

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1. Read NYT Finalizes The Sale Of The New England Media Group for more on sale of these assets [↩]