New York Times Earnings: Operational Efficiencies Drive Q4 Results
The New York Times Company (NYSE:NYT) reported its fiscal 2015 fourth quarter earnings on Thursday, February 4th. In line with our expectations, a higher digital subscriber base helped the company stabilize its circulation revenues. However, headwinds in advertising revenues more than offset the gains made in circulation, causing total revenues in the quarter to remain flat at $444 million, compared to the year ago period.
On the expense side, the company successfully cut its operating costs by 7.7% year on year (y-o-y) to $353 million in the fourth quarter and 6% y-o-y to $1.4 billion in 2015. [1] This a result of higher efficiencies in print production and distribution process as well as declines in severance, depreciation, amortization, marketing and promotion and raw material costs. Going forward, the company expects operating costs to increase slightly as the company invests in technology to grow its digital revenues.
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We have a $14 price estimate for New York Times’ stock, which is slightly above the current market price.
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Improvement In Circulation Revenues
Digital-only subscriptions grew 20% y-o-y to 1.09 million. Consequently, digital subscription revenues were responsible for approximately $50 million of the total circulation revenues in Q4, up 13% y-o-y. On the other hand, print revenues declined due to the fall in overall print volumes, offset slightly by January 2015’s home delivery price increase. As a result, NYT improved its circulation revenues by a modest 1% y-o-y to $213 million and $845 million in Q4 and full year 2015, respectively. [2] The steady growth seen in the year can be attributed to the use of better retention tactics, growth in international subscribers, and the implementation of a targeted pricing strategy by the company.
Going forward, NYT expects to maintain the growth momentum in circulation revenues on the back of continued additions to its digital subscriber base and a hike in delivery prices.
Headwinds Continue In Advertisement Revenues
Headwinds in the advertisement segment continued, causing segment revenues to decline by 1.3% y-o-y to $205 million in Q4 and 3.6% y-o-y to $638 million for the full year. The main reason for the decline was the 6.6.% y-o-y fall in print advertising revenues, due to the decreased demand from the International New York Times’ luxury category. In contrast, digital advertising revenues increased 10.6% y-o-y, demonstrating strength in mobile, branded content and creative services revenues. Moreover, digital advertising revenues were now accountable for 34.1% ($69.9 million) of total advertising revenues, compared with 30.5% ($63.2 million) in the fourth quarter of 2014. ((NYT Fourth Quarter Earning Transcript, Seeking Alpha, February 2016))
The company expects the downtrend in advertising to continue in the first quarter of 2016, with revenues falling in the range of 2-4% y-o-y. However, digital advertising will likely show strength, based on higher engagement on mobile, which was responsible for 22% of advertising revenues in Q4, and NYT’s initiatives in the domain of virtual reality (NYT VR app) and content creation (T-Brand Studio).
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Notes:- NYT Reports Fourth Quarter Earnings, NYT Press Release, February 2016 [↩]
- NYT Fourth Quarter Earning Transcript, Seeking Alpha, February 2016 [↩]