After 26% Growth In 2020, What’s Next For New York Times’ Stock?

New York Times’ stock (NYSE: NYT) grew almost 26% from $32 levels at the beginning of this year to almost $41 levels (as of June 4th), compared to a 4% decline for the broader S&P 500. While the New York Times has outperformed the broader markets, we believe there is still modest upside potential from the current levels. The current circumstances have brought in a wide set of new audiences for the media company, particularly from the digital platform. Readers likely converged onto the site for details on the Covid-19 pandemic and subsequent lockdown. To add to this, readers were also possibly interested in food coverage, games, and crosswords. Almost two-thirds of the company’s revenues come from its subscriptions, which could likely help the company weather impacts of the pandemic and beyond.

NYT’s stock jumped almost 84% since the end of 2018, a little over two years ago. Our dashboard, ‘What Factors Drove Almost 84% Change In New York Times Stock Between  2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.

Some of the stock price gain over the past two years can primarily be attributed to modest revenue and strong earnings growth for the company. NYT’s revenues were up around 4% from $1.7 billion in 2018 to $1.8 billion in 2019, driven by the U.S. political climate. This combined with a 7.5% jump in net income margin from 7.2% in 2018 to 7.7% in 2019, helped earnings per share grow from 76 cents to 84 cents during this period. In addition, NYT’s P/E multiple grew 31% from 29.0 in 2018 to 38.2 in 2019. Moreover, NYT’s P/E is up to about 48.2 now, given the current favorable situation for the company’s digital growth. This reflects a 21% increase in P/E multiple since December 2019.

The reason for NYT’s stock outperformance over recent years can be attributed to the unprecedented growth in digital subscriptions. The company re-claimed its footing in a digital transformation, thanks to the U.S. Presidential election in 2016. Donald Trump has been highly critical of the NYT and attacked the newspaper several times on Twitter, calling it “failing” and criticizing its coverage of reported turmoil within his transition team. In light of these events, NYT gained subscribers driven by the publicity and controversy surrounding the President-elect. This boost from the political season helped NYT strengthen its readership and boost earnings over the past few years.

How Is Coronavirus Impacting New York Times’ Stock?

NYT saw a higher volume in reader traffic in the lockdown period due to Covid-19. In Q1 2020, NYT reportedly added 587,000 net new digital subscriptions compared to Q4 2019, resulting in its highest number of net new subscriptions in a quarter in its history. This was despite a recent monthly price hike in its news product from $15 to $17. However, the company also witnessed a slowdown in its international and domestic advertising bookings, due to uncertainty and anxiety related to the virus. Its advertising revenues fell 15% year-over-year to $106 million in Q1. To break it into segments – Digital advertising dropped 8% y-0-y while Print revenues declined 21% y-o-y. In fact, the company also stated that advertising revenue in the upcoming Q2 is likely to fall by 50-55% compared to a year ago.

NYT plans to speed up the overhaul of its ads business after being hit by a cut in the advertiser’s spending. The company is working to concentrate its ad business in a smaller number of growing categories, like tech or financial services, where it can build multi-platform collaborations with companies such as Google. It should be noted that the declining ad revenue will put pressure on profitability for some time and consequently, the company is planning to cut costs (including possible job cuts). But we still believe that NYT’s growing focus on digital subscriptions and declining dependence on advertising should bode well for the company in the long run. Going by historical trends and our valuation dashboard, we believe that the company’s stock could potentially offer a modest upside return.

Also see: What Factors Drove Change in The Disney Company Stock Between 2017 and Now?

In addition, our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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