NYT Earnings: Revenues Grow Across All Divisions

The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., posted its Q1 results on April 24. It reported a 2.6% year-on-year growth in revenue to $390.4 million, as we forecast in our pre-earnings note. However, its operating profit declined to $22.05 million on higher compensation and benefits expense associated with the strategic growth initiatives, as well as higher retirement costs. Excluding depreciation, amortization, severance and special items, operating profits declined 0.9% year over year to $56.63 million, principally due to a one-time early termination charge of $2.55 million.

For the first time in the last two years, the company reported revenue growth across all its divisions. While advertising revenues grew by 3.8% to $158.72 million, circulation revenues grew by 2.06% to $209.72 million and other revenues grew by 1.4%. ^[1] Additionally, the company added more net digital subscribers in the first quarter of 2014 than in any quarter in 2013.

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Outlook For Q2 2014

The company expects circulation revenues to increase in low single digits in the second quarter of 2014 compared with the second quarter of 2013, as benefits from its digital subscription initiatives and the increase in print home delivery price bear fruit. Total advertising sales in the second quarter of 2014 are expected to decrease in the mid-single digits compared with the second quarter of 2013, primarily due to a challenging business environment in the print ads business. The company expects Q2 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. In addition, the Company expects the following on a pre-tax basis in 2014:

• Results from joint ventures: breakeven,
• Depreciation and amortization: $75 to $85 million,
• Interest expense, net: $53 to $57 million, and
• Capital expenditures: $35 to $45 million.

Advertising Revenue Grows

While the print ads business has been on a decline as advertisers are increasingly spending more money on online ads, NYT’s online ads business suffered from a pricing pressure due to programmatic buying and a glut of available ad inventory for the past few years. However, NYT’s print ads division, which makes up 28% of its estimated value, was able to buck the declining trend in the print ads business in Q1. Print ads revenues grew in Q1 due to positive growth in the national and retail ads category. NYT reported a 3.7% year-over-year growth in print ad revenues to $120.92 million. Nevertheless, 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 2.2% year-over-year growth in revenues to $37.8 million in Q1. The primary reason for this growth was new Digital Advertising products, Paid Posts, the native advertising product launched by the company in January. Furthermore, 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.

Digital Subscription Boosts 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 grew by 2.1% year-over-year to $209.72 million. While NYT’s daily print circulation continues to decline, its digital subscriber base has continued to expand at a fast pace. In Q1, NYT’s paid digital subscriber base grew by 5% quarter-over-quarter to 799,000. Digital subscription now accounts for nearly 19% of NYT’s circulation revenues as opposed to 13% in Q1 2012.

During the quarter, the company has announced a host of new steps to boost its digital subscriber base. It rolled out an expanded digital product offering such as Times Premier and NYT Now at different price points to expand its appeal to existing print subscribers and mobile platform subscribers. 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.

International Expansion Plans Gains Traction

NYT is planning to expand its footprint outside the U.S. It has recently launched the ‘Market Domination Program’ to increase NYT’s brand awareness among international audience. Furthermore, the company plans to rollout local currency billing for international markets so as to facilitate and expedite adoption of digital subscription abroad. We will continue to monitor NYT’s international expansion plan as and when it unfolds.

We are in the process of updating our valuation to incorporate the Q1 2014 earnings. At present, we have a $8.33 price estimate for New York Times, which is 50% below the current market price.

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1. 8-K, SEC [↩]