NYT Earnings: Revenues Decline Across Divisions

The New York Times Company (NYSE:NYT) posted its Q4 results and reported a 5% year-on-year decline in revenue to $444 million. However, its operating profit improved to $68.9 million on lower newsprint cost and pension settlement expense. Excluding depreciation, amortization, severance and special items, operating profits declined 12% to $96.6 million principally due to the extra week in 2012 and the impact of significant investment in the company’s growth strategy.

During the quarter, circulation revenues decreased 3.9%, advertising revenues were down 6.3% and other revenues decreased 5.6%. ^[1] As stated previously, we expect New York Times will continue to focus on growth in digital subscriptions and online advertising products as these will help offset the decline in revenues from print advertising.

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Outlook For Q1 2014

The company expects circulation revenues to increase in low single digits in the first quarter of 2014 compared with the first quarter of 2013, as benefits from its digital subscription initiatives, as well as the increase in print home-delivery price, bear fruit. Total advertising revenue trends in the first quarter of 2014 are expected to be similar to the level experienced in the fourth quarter of 2013. The company expects Q1 2014 operating costs to increase in low to mid-single digits on a year-on-year basis as investments related to its strategic growth initiatives accelerate.

Digital Subscription Arrests Decline In Circulation Revenues

According to our estimates, NYT’s print circulation and digital subscription division contribute over 45% to its stock value. During the quarter, circulation revenues declined by 3.9% year-over-year to $207.67 million. While NYT’s daily print circulation continues to decline, its digital subscriber base has continued to expand at a fast pace. In Q4, NYT’s paid digital subscriber base grew by 19% year over year to 760,000. Digital subscription now accounts for nearly 19% of NYT’s circulation revenues as opposed to 13% in 2012. Going ahead, we expect digital subscription growth to drive growth in circulation revenues. We currently estimate the number of NYT’s online subscribers to increase to around 1.4 million by the end of our forecast period.

Advertising Revenues Decline, Albeit At A Slower Pace

With the advent of the Internet, the print ads business has been on a decline as advertisers are increasingly earmarking more funds for online ads. NYT’s print ads division, which makes up 28% of its estimated value, has not been able to buck the trend and continues to report declines in revenue. However, print ads revenues declined at a slower pace in Q4 due to positive growth in the national ads category. NYT reported a 1.6% year-over-year decline (after adjusting for an additional week in Q4 2012) in print ad revenues to $159 million. We currently project that NYT’s print ads revenues will continue to decline, in line with U.S. national print ad spending.

Additionally, the online advertising division, which is the third largest division of NYT and makes up 25% of its estimated value, posted a 0.2% year-over-year decline in revenues to $52.98 million in Q4. Digital advertising continued to suffer from pricing pressure due to programmatic buying and a glut of available ad inventory. However, NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. Additionally, the company continues to experiment with custom advertising and has increased its product offering on mobile devices. We estimate these initiatives will 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.

We are currently updating our NYT model. At present, we have a $8.33 price estimate for New York Times, which is approximately 40% below the current market price.

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1. 8-K, SEC [↩]