What To Expect From New York Times’ Q3

New York Times’ (NYSE:NYT) performance has been mostly above its guidance and market expectations so far this year, driven largely by the political climate in the U.S. NYT has witnessed significant digital growth in its readership since the 2016 election, which largely offset the secular declines in its print business. In the first half of fiscal 2018, the company saw weak advertising trends, with both print and digital advertising revenue declining 7% y-o-y. However, the company’s overall revenues grew 3% y-o-y to $828 million in the period, driven by more than 20% y-o-y growth in digital-only subscription revenues to $194 million. This was driven by unprecedented growth in digital-only subscribers, which grew by 23% y-o-y to 2.9 million. We expect that this trend continued in Q3 as well. Below we detail what we are expecting from the company’s Q3 earnings, which it is scheduled to report on Thursday, November 1.

New York Times’ stock price has increased more than 30% over the course of 2018, primarily driven by impressive digital subscriber growth since the 2016 U.S. elections. Our $23 price estimate for NYT’s stock is now slightly below the current market price following this rally. Our interactive dashboard on Can New York Times Keep Beating Estimates In The Second Half of The Year? 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 third quarter of 2017, with digital-only subscription revenue expected to increase in the 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 2.9 million in Q2 2018. 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 15% y-o-y. We forecast advertising revenue to decline 10% y-o-y to around $500 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 $160 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 14% 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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