Why We Revised Our Price Estimate For New York Times To $21

We recently revised our price estimate for New York Times (NYSE: NYT) upward to $21, which is still slightly below the current market price, on account of higher expected revenue and adjusted profit estimates relative to our previous forecasts. The company’s performance until now has been mostly above its guidance as well as market expectations, driven by the political climate in the U.S. NYT has witnessed significant digital growth in its readership since the U.S. Presidential election, which largely offset the secular declines in its print business. In fact, the company’s stock is now trading more than 20% higher than its price at the beginning of the year, and up more than 75% in the past year. Accordingly, we have adjusted our forecasts to reflect the current trends.

We have revised our adjusted net income estimate upward from $120 million to $150 million for 2018, implying adjusted EPS of around $0.88. Further, we have also increased our trailing twelve-month P/E multiple for the company to 24 from a previous 21.5, which – when combined with the estimated EPS – gives us price estimate of $21. Our interactive dashboard details our forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for New York Times can have on our price estimate for the company.

Digital Subscriptions Will Continue To Boost Subscription Revenues

In fiscal 2017, NYT reported unprecedented growth in digital subscriptions, which helped the company stabilize its total subscription revenues. The company’s total subscription revenues increased 14.5% year-over-year (y-o-y) and surpassed $1 billion for the first time in the company’s history, with digital-only subscription revenue growing strongly at 46% y-o-y. Overall, NYT’s online subscriber base has grown from 800,000 in 2013 to 2.6 million in 2017 (with further strong growth in all quarters of 2017). In addition, the digital-only subscriptions revenue grew 26% y-o-y in the first quarter of 2018 as well. Going forward, we estimate NYT’s online subscriber base to be its biggest value driver, and consequently, forecast this growth to pick up in the coming years and reach 4 million by 2022. As a result, we increased our subscription revenue forecast for 2018 by 20%. We also decreased our advertising revenue forecast from $619 million to $560 million in 2018, on the back of the continued decline in the display (print) advertising and traditional website display advertising.

We also increased our 2018 estimate for NYT’s operating profit by $80 million to $230 million on lower expected operating expenses and higher expected special items costs such as restructuring charges, pension settlement expenses, and post-retirement benefit plans. Based on the above estimates, and our adjustments to operating expenses, we have decreased our forecast for the company’s interest expense to $20 million from the previous estimate of $50 million. Overall, these adjustments have resulted in a more than 30% drop in our GAAP net income forecast. However, our adjusted net income forecast grew 25% on the back of an increase in severance cost, non-operating costs and tax adjustments estimates for 2018.

Going forward, we expect continued year-over-year growth for NYT in 2018 as well, but at a slower rate than in 2017, 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 nearly 10% to our price estimate. As NYT’s legacy print business is seeing steady declines, and the company is already in a transition phase of turning digital, the boost from the election season could help strengthen its readership and boost earnings. In fact, NYT’s traffic data suggests that site visits have averaged out in the last six months, which indicates that the company is still able to retain new online readers.

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