NYT Earnings Preview: Digital Media To Support Revenue Growth In Q4

The New York Times Company (NYSE:NYT) is set to report its fourth quarter earnings on Thursday, February 4^th. ^[1] The company successfully increased its digital user base to over 1 million in 2015, causing circulation revenues to stabilize through the first nine months through September. On the other hand, advertising revenues declined by 9% year-on-year (y-o-y) because of a decrease in print advertising revenues from International New York Times (INYT). ^[2] NYT is expected to continue to add more digital subscribers to its existent subscriber base in the fourth quarter, such that its circulation revenues remain steady. However, the company may experience headwinds in advertising revenues due to a change in the industry-wide standard on ad viewability.

With respect to operating costs, the company is practicing strict fiscal discipline to counter the decline in print revenues. The company restricted its operating costs to $1 billion in the first three quarters of the year. We expect operating costs to decline further in Q4 as both print volumes and printing costs fall.

We have a $14 price estimate for New York Times’ stock, which is slightly above the current market price.

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Digital Subscriptions To Stabilize Circulation Revenues

Driven by the growth in digital subscription revenues and increase in print home delivery prices, circulation revenues at the end of the third quarter rose slightly to $632 million in 2015. However, the continued trend away from print media led to a decline in the number of print copies sold in the period, offsetting the growth in circulation revenues. Correspondingly, the company expects to add 40,000-50,000 additional digital subscribers in Q4, which should revenues stabilize. ((NYT Third Quarter Results, The SEC, October 2015))

Ad Revenue Headwinds 

Print advertising revenues, which were responsible for 70% of total advertising revenues at NYT, declined by 8.6% y-o-y in the first three quarters of 2015. On the other hand, digital ad revenues increased by 7% y-o-y in the same period, while witnessing a decline of 5% y-o-y in Q3. ^[2] Total advertising revenues stood at $433 million at the end of September, down 4.6% y-o-y. The decrease in digital ad revenues in Q3 reflected a shift away from traditional website display advertising to mobile and video platforms, along with the effect from change in the ad viewability standard, a standard intended to ensure that advertisers only pay for impressions that have actually been viewed by users. Going forward, the company expects to reverse the trend in digital advertising revenues to grow in mid-single digits in Q4, although headwinds in print advertising revenues are expected to continue.

Remarkable Drop In Operating Costs

Expense management in an important part of NYT’s growth strategy, and it will remain so going forward, especially in the print space. Declines in severance pay, reduced depreciation and amortization, better print distribution efficiencies, and lower raw materials and outside printing costs, all contributed to a 7.6% y-o-y decrease in operating costs in Q3. The company is expected to maintain firm control over operating expenses as it projects a decline of low-to-mid single digits in these costs for the fourth quarter.

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1. NYT Reports Fourth Quarter Earnings, NYT, January 2016 [↩]
2. NYT Third Quarter Results, The SEC, October 2015 [↩] [↩]