Political Climate Benefiting New York Times, Here’s How It Could Impact Its Valuation

The New York Times Company (NYSE:NYT) started fiscal 2017 on a strong note, as both its earnings per share and revenue came in ahead of expectations in the first quarter. The company reported unprecedented growth in digital subscriptions, which helped it stabilize its circulation revenues in the first quarter, which increased 11% year-over-year (y-o-y), with digital-only subscription revenue growing strongly at 40% y-o-y. Growth in new subscribers led to the solid growth in circulation revenues, which contribute more than half of the company’s total revenues. In fact, NYT has been seeing impressive subscriber figures in the past few quarters, particularly online subscribers, partially offsetting the print circulation pressure.

This surge in the newspaper’s subscriptions is largely believed to be driven by the current political climate in the U.S. NYT has likely gained subscribers driven by the publicity and controversy surrounding President Trump, as he has been highly critical of the newspaper and has attacked it several times on Twitter (NYSE:TWTR), calling it “failing” and criticizing its coverage. In fact, we expect NYT to benefit from the “Trump Bump” and grow its digital paid subscriptions for the entire Trump presidency. In addition, some consumers could have turned to the Times due to the increase in circulation of “fake news,” as the Times is considered one of the most trusted news outlets in U.S., according to a Pew research survey ^[1] This brand recognition and trust could provide NYT an opportunity to grow its readership further in the coming quarters. The company’s stock is up 32% year-to-date, and has already gained 40% in the past year.

Digital Subscriptions Boost Circulation Revenues

NYT’s total digital-only subscription revenues grew 9% quarter-over-quarter (q-o-q) in Q4, due to the coverage of U.S. Presidential election. The company’s stock climbed more than 20% following the elections, following a more-than-tenfold increase in the newspaper’s daily subscription sign-ups following the election, far surpassing any other news medium. In fact, NYT added 41,000 paid subscriptions across its print and digital platforms in the first week after the presidential election, representing the largest subscription increase since it introduced its pay-wall in 2011. The company continued to attract readers after the election as well, and saw an almost 20% jump in digital subscribers during the first quarter from 1.85 million to 2.2 million. This jump boosted an already strong 2016 performance that saw digital subscribers grow by over 45% y-o-y. In Q1 alone, the paper added 308,000 new digital subscribers, which was a record number, that helped to offset continued pressure on print circulation revenues.

Is This Growth Sustainable?

Although NYT gained remarkable digital subscribers in the first quarter, the company continued to see pressure in its advertising revenue. In Q1, print ad revenue declined by 18% y-o-y which led to decline in overall advertising revenue (-7%), despite digital advertising revenue growing 19% in the first quarter. However, NYT was able to post growth in total revenues, as only 24% of the company’s revenue comes from print advertising. As the company’s legacy print business is on a steady decline, and the company is already in a transition phase of turning digital, the recent boost from the political season could help NYT strengthen its readership, and boost earnings. In fact, NYT’s traffic data suggested that the site visits grew around 6% since the November election, which indicates that the company is able to retain the new-found online viewers.

Going forward, we expects continued year-over-year growth in the coming quarters of 2017 as well, but at a slower rate than in the prior two quarters, followed by strong growth thereafter. However, if the company is able to maintain a growth rate of around 20% there could be an upside of 7% to our price estimate.

Have more questions? Please refer to our complete analysis for New York Times 

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1. Political Polarization & Media Habits, journalism.org, Oct 2014 [↩]