Can Accelerated Subscriber Growth Justify A $30 Fair Value For New York Times’ Stock?

December 21st, 2018 by Trefis Team
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New York Times

The New York Times Company‘s (NYSE: NYT) online business has largely offset the secular declines in the print business, especially in recent quarters, driven largely by the political climate in the U.S. NYT has witnessed significant digital growth in its readership since the U.S. Presidential election, as the company likely gained subscribers driven by the publicity and controversy surrounding President Trump. 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 the U.S., according to a Pew research survey. We expect this brand strength and trust to provide the company an opportunity to further grow its readership in the coming quarters.

New York Times’ stock price has increased by almost 20% over the course of 2018, primarily driven by this impressive digital subscriber growth. Our $25 price estimate for NYT’s stock is slightly ahead of the current market price. Our interactive dashboard provides a scenario in which the company’s stock could reach $30 in the near term, driven by accelerating subscriber additions. In this scenario, we forecast the company’s digital subscriber base to grow to 3.9 million in 2019, compared to our base case forecast of 3.4 million. Below we detail this scenario further.

Digital Driving Growth

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We expect NYT to generate around $2 billion in revenues for full-year 2019. Our revenue forecast represents year-over-year growth of around 3%. Of the total expected revenues in 2019, we estimate $660 million in Advertising and Other revenues, over $300 million for Circulation revenues, and nearly $1 billion in Digital Subscription revenues. Our bull case for a $30 price estimate for NYT’s stock assumes that the company’s Digital Subscription revenues could reach $1.2 billion, resulting in the company’s total revenues reaching $2.2 billion for 2019. We have assumed the company’s other revenues remain constant in this scenario.

Overall, NYT’s online subscriber base has grown from 800,000 in 2013 to 3.1 million in Q3 2018. Going forward, we expect the company’s online subscriber base to be its biggest value driver, and consequently, we forecast this growth to pick up in the coming years to reach 4.5 million subscribers by 2022. With that said, the company’s valuation is highly reliant on this forecast growth. In our bull case scenario, the number of digital subscribers would have to increase to 3.9 million subscribers with a slight growth in fees per subscriber in 2019, in order for NYT to have a $30 fundamental value.
We have not changed the company’s margin estimates in our bull case scenario, which translates into net income of nearly $180 million in 2019, up from $160 million in our base case. In addition, we have increased our P/E estimate to 26.5x in our bull case, up from 24.3x in our base case, as the higher growth trajectory would justify a higher multiple. Overall, these upside case estimates result in an upside price estimate of $30 for NYT.

NYT’s traffic data suggests that site visits have increased in the last six months, which indicates that the company has able to retain its newfound online viewers. Going forward, we expect continued year-over-year growth in the coming quarters of 2019, but at a slower rate than in the prior year, followed by strong growth thereafter.

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