New York Times Is Thriving On Growing Digital Subscriptions

New York Times (NYSE: NYT) ended fiscal 2018 on a high note after announcing solid fourth quarter results on February 6, as both its earnings per share and revenues came in ahead of market expectations. In addition, NYT’s stock gained almost 10% following the Q4 earnings release, and also touched its thirteen-year high during the trading day. Overall, the company’s revenues grew 4% y-o-y to $503 million, driven by 10% y-o-y growth in digital-only subscription revenues to $105 million. NYT again reported unprecedented growth in digital-only subscriptions, which grew strongly at 27% y-o-y to 3.4 million. This increase in new subscribers in Q4 led to growth in NYT’s overall subscription revenues, which contribute more than half of total revenues. The company’s total subscriptions now stand at more than 4.3 million. Further, NYT’s advertising revenues also grew 5% y-o-y, as digital ad revenue grew 23% year-over-year (y-o-y) while print ad revenues dropped marginally y-o-y. It should be also noted that the company’s digital advertising represented 54% of total advertising revenues as compared to 46% from print (digital advertising exceeded print advertising for the first time ever).

Our $25 price estimate for NYT’s stock is now nearly 20% below the current market price following this rally. Our interactive dashboard on How Did NYT’s Financials Fare In Q4 outlines our detailed analysis of the company’s earnings as well as our forecast for the company’s full-year fiscal 2019 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings. We expect NYT to continue to post an increase in earnings and revenue growth rate in Q1, driven by the positive momentum of digital subscriptions.

Q1 Guidance

Going forward, NYT expects its total subscription revenues to increase in the low to mid-single digits, compared with the first quarter of 2018, with digital-only subscription revenue expected to increase in the mid-teens. The company also expects its advertising revenues to decrease in the low to mid-single digits y-o-y, with digital advertising revenues expected to increase in the mid-teens. In addition, the company’s other revenues are expected to increase by approximately 50%, largely due to the growth in its commercial printing operations. Also, NYT’s adjusted operating costs are expected to increase approximately 10% y-o-y, driven by investment in the digital subscription growth drivers of marketing, product, and journalism.

Fiscal 2019 Outlook

Overall, NYT’s online subscriber base has grown from 800,000 in 2013 to 3.4 million in 2018. 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 4.5 million by 2022. As of now, we forecast the company’s subscription revenue for 2019 to grow by 4% y-o-y. We forecast advertising revenue to remain flat to around $560 million in 2019, on the back of the continued decline in display (print) advertising offset by growth in digital advertising. We also estimate NYT’s adjusted 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 to $0.93 in 2019.

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