Can New York Times Beat Expectations in Q3?

New York Times (NYSE: NYT) is scheduled to report its fiscal third-quarter results on Thursday, November 5. We expect NYT to likely beat the revenue expectations, driven by the positive momentum of digital subscriptions in Q3. However, the company’s earnings could fall short of market expectation due to the ongoing advertising pressure.

Our forecast indicates that NYT’s valuation is $46 a share, which is 14% higher than the current market price of around $40. Look at our interactive dashboard analysis on NYT’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates NYT’s Q3 2020 revenues to be around $414 Mil, slightly ahead of the consensus estimate of $412 Mil. NYT expects subscription revenue to rise 10% y-o-y (digital-only up 30%) in Q3, and for ad revenues to drop 35-40% y-o-y (and digital ad revenue falling 20%). In addition, other revenues are expected to decline by about 10%.

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.

2) EPS likely to be slightly below consensus estimates

NYT’s Q3 2020 earnings per share (EPS) expected to be $0.10 per Trefis analysis, slightly below the consensus estimate of $0.11. We expect the company’s ongoing news product innovation and further expansion of its live news offerings to positively impact profitability. But the decline in the advertising business could offset this growth.

For the full-year, we expect NYT’s adjusted net margin to decline from 8.8% in 2019 to 7.3% in 2020. This coupled with a 3% y-o-y decline in revenues, could lead to a drop of $30 million y-o-y in adjusted net income to $130 million in 2020. All this, resulting in a possible EPS decline from $0.93 in 2019 to around $0.76 in 2020.

(3) Stock price estimate 14% higher than the current market price

Our forecast for NYT’s 2019 earnings is slightly lower while the P/E multiple is 25% higher than the market expectations, working out to a fair value of $46 for NYT’s stock, which is roughly 14% higher than the current market price of around $40. The company’s growing user base, coupled with investments in other fields such as audio storytelling, could boost its stock price in the long term. 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.

We use our full cash flow model for NYT to arrive at a P/E multiple of 60x for a price estimate of $46.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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