New York Times Is Worth $10.

The New York Times (NSYE:NYT) is one of the leading newspapers in the United states. But the company experienced a steep decline in revenues during the 2008-2009 period as the secular decline in the print industry had an adverse effect on the company’s core business. Its revenues decreased drastically from $2.4 billion in 2008 to $2.0 billion in 2009, primarily due to the large fall in print advertising revenues. However, over the past few years, its revenues have stabilized as the decrease in print advertising revenue has been offset by the growth in digital subscription and advertising business. Overall, we see print advertising revenues continuing to decline over our forecast period, and believe that New York Times’ digital subscription business will be key for the company’s profitability going forward. In this note, we discuss our rationale for $9.64 valuation of NYT.

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 53% of the company’s value. The segment generated approximately 52.6% of the company’s revenues in 2014, 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 5.6% compounded annual decline in subscriptions numbers since 2010  as readers increasingly 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 910,000 users in 2014 from around 300,000 subscribers in 2011, achieving a compounded annual growth rate (CAGR) of over 34%.

Despite these trends, New York Times’ print circulation is expected to bring in a greater amount of revenues throughout our forecast period. This is primarily because, over the past few years, New York Times has been successful in increasing the price for its circulation. This has been possible due to NYT’s brand recognition and a run in the Newspaper print industry that has forced many publishers to shut down. Currently, we forecast the weekly subscription price to stabilize at $12.50 by the end of our forecast period. However, if NYT can raise the subscription price to $18.00, our stock price estimate can be 10% higher.

Furthermore, NYT’s digital subscription will drive revenue growth as it will be able to offer competitive prices for digital services in the face of competition from free online news sources such as Huffington Post, CNN, the BBC,  etc. New York Times’ is focusing on building a strong pipeline of digital content to retain its digital subscriber base and competitively price the subscription. Furthermore, the company seeks to gain a strong and sticky user base in the competitive digital news landscape by delivering content across various platforms such as mobile, tablets and desktops. At present, we project that NYT will be able to maintain its subscription fee at $24 till the end of forecast period in 2021.

Print Advertising Will Continue to Decline

While print circulation revenue has taken a marginal hit over the past few years, New York Times’ print advertising revenue trends is the real worry. What was once the cornerstone of the business in terms of generating revenues, is now witnessing a fall due to change in advertising behavior. Advertisers are allocating more of their budgets for online ads than for print ads. As a result, the U.S. print ad spending has declined from $22.8 billion in 2010 to approximately $15.9 billion in 2014.

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 2014 approximately 19% of advertising spending was on print advertising in the U.S, even though the average consumer only spent 3.5% of their total time (26 minutes) with print media. ^[1] Over the longer term, we expect the time spent with print media will continue to decline and so will the spending on print advertising. Currently, we project U.S. print ad spending to decline to around $12.6 billion by 2021. However, NYT should be able to stabilize its market share even though the revenue will fall in absolute terms to $391 million.

Online Ads – A Challenge For NYT

NYTimes.com had a monthly average of approximately 31 million unique desktop/laptop visitors in the United States and approximately 42 million unique desktop/laptop visitors worldwide. In addition, according to comScore Mobile Metrix, in 2014, it had a monthly average of approximately 28 million unique visitors to the company site by mobile devices in the United States. ^[2] NYT has been focusing on monetizing its digital platform over the past few quarter. Most of NYT’s efforts have been on monetizing its mobile platform as mobile continues to gain traction amongst users, who are spending more time on mobile devices.

While many companies such as Facebook, Twitter and Google’s YouTube have significant revenues via the mobile platform, content aggregators have lagged behind but are catching up. Our opinion is backed by the fact that advertising spending per type of media will match the proportion of total amount of time that a user spends with a particular type of media over the longer term. We are optimistic about the mobile advertising opportunity overall, because users spend approximately 23.3% of their media consumption time on mobile devices. According to eMarketer, mobile advertising is the key driver of growth around the world, especially in the U.S. It expects that the total ad spending on mobile phones would reach approximately $64 billion globally and $28.24 billion in the U.S. ^[3]

While a large opportunity in mobile advertising exists, we think that it will be extremely difficult for a standalone 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. Nevertheless, NYT should be able to capture some share of $58 billion of digital ad spend, and $28.24 billion mobile ads. However, we don’t necessarily think that advertising on these devices will be as lucrative for New York Times as print advertising was in the shorterm. Therefore, even though we expect New York Times’ revenue per thousand page views to increase to $32.40 by the end of 2020, the online advertising division is still a small contributor to New York Times’ value at around 23%.

We currently have a $9.64 price estimate for NYT, which is approximately 30% below the current market price.

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More Trefis Research

1. Mobile Continues to Steal Share of US Adults’ Daily Time Spent with Media, www.emarketer.com [↩]
2. 10-K [↩]
3. Advertisers Will Spend Nearly $600 Billion Worldwide in 2015, December 10 2014, www.emarketer.com [↩]