New York Times: Why Did The Stock Almost Triple In 3 Years?

New York Times (NYSE: NYT) stock price has increased by 175% from $12.84 per share in August 2016 to $35.27 per share in August 2019. The increase in NYT’s stock was primarily driven by healthy growth in the company’s revenue base and a sharp rise in margins in 2018. Revenue growth and strong margins are expected to continue in 2019, as well. A positive revenue and profitability outlook due to cost-reduction measures, has driven a sharp rise in the company’s price-to-sales multiple over the years.

You can view the Trefis interactive dashboard – Why New York Times’ Stock Climbed Almost 3x In 3 Years? To better understand the stock trend with analysis of the company’s revenues, margins, and multiples. In addition, here is more Trefis Media data.

Expanding Revenue Base

• New York Times Revenues have increased from $1,579 million in 2015 to $1,749 million in 2018, adding $170 million to its revenue base.
• The company’s revenue is expected to continue its rising trend, with total revenue expected to increase by 4.1% to $1,820 million in 2019, which would mark an addition of $241 million to the total revenue base over four years (2015-2019).
• Higher revenue is expected to be driven by higher subscription for the company’s digital products, increased commercial printing, and rental revenue, partially offset by lower print advertising revenues.

Revenue Driver 1: Subscriptions

• Subscription revenue has increased over recent years due to double-digit growth in the number of subscriptions to the Company’s digital-only products.
• We expect revenue to increase in the near term, driven by continued growth in digital subscriptions, and news product and other subscriptions.

Revenue Driver 2: Others – Affiliate and Rental

• Other revenues have seen a healthy growth in recent years which is expected to continue in the near term, driven by growth in the commercial printing operations, affiliate referral revenue associated with the product review and recommendation website, Wirecutter, and revenue from the rental of five and a half additional floors in New York headquarters building.

Profitability

• After decreasing in the initial years, net income margin increased sharply in 2018, led by lower depreciation expense, interest cost, tax expense, and gains from joint ventures. Margins are expected to increase further due to cost-reduction efforts of the company and rising revenues.
• Production cost as a % of revenue faced a lot of volatility over recent years, with cost remaining subdued in 2017 and 2018. The metric is expected to decrease in 2019, led by lower printing expenses and newsprint consumption, partially offset by higher wages and benefits.
• SG&A plus Depreciation as % of revenue largely increased over recent years, due to higher marketing, compensation, and severance cost, before decreasing in 2018 due to lower depreciation expense. The metric is expected to remain flat in 2019.
• After making losses in the initial years, NYT recorded gains in the last two years from its joint ventures, which has pushed up its margins. Gains from JVs are expected to continue in 2019 as well.
• Interest expense has continuously decreased over recent years due to lower indebtedness. The metric is expected to drop further in the near term with debt expected to drop further in 2019.
• Effective tax rate fell sharply in 2018 following the implementation of the TCJ Act. The metric is expected to remain subdued due to reduction in the tax rate and absence of major deferred tax expense, unlike 2017.
• Other expenses as a % of revenue decreased sharply due to a drop in pension cost, which, in turn, pushed up profitability. Cost is expected to remain at low levels in 2019 as well.

Higher Multiple

• NYT’s price-to-sales (P/S) multiple has improved from 1.33x in August 2016 to 3.39x in August 2019.
• In contrast, the company’s global peers such as News Corp and Tribune Media have seen their multiple go through a lot of volatility and remain low during these four years.
• Thus, as of August 2019, NYT commands a much higher multiple compared to its major peers, driven by the company’s expanding revenue base, strong balance sheet due to deleveraging, and increase in profitability.

Higher multiple and a positive outlook bodes well for NYT’s stock and fundamentals. As per New York Times Valuation by Trefis, we have a price estimate of $33 per share for NYT’s stock.

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