How Google Algorithm Changes Affect NYT

April 28th, 2011 by Trefis Team
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During The New York Times Company’s (NYSE:NYT) Q1 2011 earnings conference call, management discussed the negative impact that the recent algorithm changes in Google (NASDAQ:GOOG) have had on NYT. [1] Specifically, the company showed concern regarding the loss of traffic for its site About.com, a consumer-focused website that provides advice and information on topics ranging from cooking to construction. New York Times competes with News Corp’s (NASDAQ:NWS) The Wall Street Journal (WSJ) as well as internet-based outlets like Yahoo (NASDAQ:YHOO), Google and AOL (NYSE:AOL).

Our price estimate for NYT stock, at $9.19 is about 5-10% above market price.

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Google Algorithm Changes Affect NYT

Google does not disclose its exact algorithm changes. Still, we know that the recent update aims to reduce the search ranking of “low-quality” sites. As per Google, this change could affect around 12% of search queries. [2] During the earnings call, management mentioned that design changes in Google’s algorithm had a negative impact on advertisement click through rates. About.com also took a hit from the change.

According to NYT management:

Design changes in cost-per-click advertisements served by Google had a negative effect on click through rates in the quarter, and we expect that to be the case through the second quarter as well. About also experienced a moderately negative impact on page views from the algorithm changes Google implemented in the quarter. [1]

We estimate that About.com accounts for around 14% of the company’s stock value.

So About.com’s traffic could suffer in the near-term. The real issue is whether these concerns can be resolved. Should these concerns persist, there could be downside to our $9.19 price estimate for NYT . You can examine this affect by dragging the trend line in the modifiable chart above.

See our full analysis and $9.19 price estimate for NYT

Notes:
  1. NYT Q1 2011 earnings conference call transcript, April 21st 2011 [↩] [↩]
  2. The official Google blog report, February 24th 2011 [↩]