Can New York Times Keep Beating Estimates In The Second Half Of The Year?

New York Times’ (NYSE:NYT) announced solid second quarter results on August 8, as both its earnings per share and revenues came in ahead of market expectations. However, NYT’s stock declined over 5% due to a drop in advertising revenues. The company’s advertising revenue declined 10% y-o-y, as digital ad revenue fell 7.5% year-over-year (y-o-y) and print ad revenues dropped 11.5% y-o-y. However, the company’s overall revenues grew 2% y-o-y to $415 million, driven by 20% y-o-y growth in digital-only subscription revenues to $99 million. NYT again reported unprecedented growth in digital-only subscriptions, which grew strong at 24% y-o-y to 2.9 million. This increase in new subscribers in Q2 led to growth in NYT’s overall subscription revenues, which contribute more than half of total revenues.

New York Times’ stock price has increased nearly 20% over the course of 2018, primarily driven by impressive digital subscriber growth since the U.S. Presidential election. Our $21 price estimate for NYT’s stock is now slightly below the current market price. We have created an interactive dashboard on what to expect from NYT’s 2018 earnings which outlines our forecasts for the company’s Q3 and fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. We expect NYT to continue to post an increase in earnings and revenue growth rate in Q3, driven by the positive momentum of digital subscriptions.Q3 Guidance

Going forward, NYT expects its total subscription revenues to increase in the mid-single digits, compared to the first quarter of 2017, with digital-only subscription revenue expected to increase in high teens. However, the company also expects its overall advertising revenue to decline in low-single digits y-o-y, with digital advertising growing approximately 10% y-o-y. In addition, the company’s other revenues are expected to increase 50% y-o-y. Also, NYT’s adjusted operating costs are expected to increase by nearly 10% y-o-y, driven by higher marketing costs and growth in commercial printing operations.

Fiscal 2018 Outlook

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 four quarters of 2017). In addition, the digital-only subscription revenue grew 23% y-o-y in the first half of 2018 as well. Going forward, we estimate NYT’s online subscriber base to be its biggest value driver, and forecast this growth to pick up in the coming years and reach 4 million by 2022. As of now, we forecast the company’s subscription revenue for 2018 to grow by 20% y-o-y. We forecast advertising revenue to decline slightly to around $560 million in 2018, on the back of the continued decline in the display (print) advertising and traditional website display advertising. We also estimate NYT’s operating profit to reach $230 million, based 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 expect NYT’s adjusted net income to grow about 15% y-o-y on the back of an increase in severance costs, non-operating costs and tax adjustments estimates for 2018.

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