What Will New York Times Look Like In 2023?

New York Times’ stock (NYSE: NYT) grew by 37% this year, with its market cap standing at roughly $7.3 billion. The stock now trades at around a 48x P/E multiple. Does this make the stock expensive? Probably not, considering that revenues could grow by 1.3x by 2023, with net income growing rapidly, generating continued returns for shareholders. Here’s how this is possible.

For more details on NYT’s historical performance, see our interactive dashboard what drove NYT’s stock up 2x since the end of 2018

NYT’s Revenues could grow by around 1.3x from estimated levels of close to $1.7 billion in 2020 to around $2.2 billion by 2023, representing a growth rate of roughly 8% per year (for context the annual growth was about 5% between 2016 and 2019). There are multiple trends that support this continued growth. Firstly, the company added 669,000 net new digital subscriptions in the recent Q2, of which 74% came for its core news product and the rest from other digital products (crossword, cooking, and audio products). Surely, readers likely converged onto the site for details on the Covid-19 pandemic and the subsequent lockdown, but NYT has actually seen growth in its digital subscriptions over the last few quarters. At the end of Q2, the company had a total of 5.7 million total digital subscriptions, up 50% year-over-year from 3.8 million in Q2 2019.

The growing user base, coupled with investments in other fields such as audio storytelling, could boost the company’s overall revenues going forward. The company has big ambition in audio journalism particularly with The Daily (NYT’s news podcast with around 3.5 million listeners each day), Serial Productions (NYT’s recently acquired company that produces the Serial Podcast), and a new partnership with This American Life (a radio program). Also, the Times has begun to reach new audiences through TV and films with its documentaries on Netflix and Hulu.

It should also be noted that NYT’s advertising revenue declined by 44% year-over-year to $67.8 million in Q2 2020. The traditional advertising industry continues to see declines amid the rise of tech companies such as Facebook. To add to that, anxiety related to the coronavirus further led to a slowdown in international and domestic advertising bookings. NYT plans to speed up the overhaul of its ads business after being hit by a cut in the advertiser’s spending during this period. 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. NYT pivoted to the subscription-based model in order to offset the advertising pressure. At present, the company has 6.5 million total print and digital subscribers and is well ahead of its goal to achieve 10 million subscribers by 2025.

The upcoming elections serve as a big opportunity for NYT’s growth. 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 then President-elect. There is a solid chance that NYT can benefit from another bump in subscriptions while covering the upcoming major political event of the year.

We expect NYT to post margins of around 7.7% in this fiscal year (Net Income, or profits after all expenses and taxes, calculated as a percent of revenues), down from 8.6% in 2019, due to advertising pressure. It’s probably reasonable to assume that as NYT’s business gains scale, its margins can increase by over 1.5x, so we estimate roughly 12% margins by 2023. Considering our revenue projections of roughly $2.2 billion and 12.0% margins, $264 million in net income is likely possible by 2023, i.e. around 2x growth in earnings possible in the next three years.

Now, if NYT’s earnings grow 2x, the P/E multiple will shrink to 50% of its current level, assuming the stock price stays the same. But that’s exactly what NYT investors are betting will not happen! If earnings expand 2x over the next few years, instead of the P/E shrinking from around 48x presently to about 24x, a scenario where the P/E metric falls more modestly, perhaps to about 38x looks more likely. This would make growth in NYT’s stock price by about 35% a real possibility in the coming years, taking its market cap to around 9.8 billion.

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