Despite Lower Ad Revenue Guidance, NYT Should Benefit from its Paywall

The New York Times Company (NYSE:NYT) needs to show robust growth in its digital subscriptions to reassure its investors. Since the company lowered its Q3-2011 guidance, ^[1] its stock has slid from above $7 to below $6 in just under a week. The NYT competes with publications like the Wall Street Journal owned by embattled News Corp (NASDAQ:NWS) as well as Internet-based outlets like Yahoo(NASDAQ:YHOO), Google (NASDAQ:GOOG) and AOL (NYSE:AOL).

We currently have a price estimate of $9 for NYT’s stock, which is well above the current market price.

Despite Ad Revenue Decline, Online Circulation Still Holds Promise

NYT’s ad revenue has been projected to decline by 8% next quarter according to the company’s management, which is much higher than the low-single digit decline expected earlier. The revenue decline might be arising from a multitude of factors, namely increasing competition from display advertising giants such as Facebook and Google, as well as gloomy economic environment affecting the online advertising industry as a whole.

Nevertheless, the company should continue to place its bet on its digital subscription initiative launched in March this year. NYT has built a strong reputation of providing quality journalism and content, which should keep user stickiness high and help retain the 220,000+ digital subscribers it has acquired till July. ^[2] While management has kept mum on any recent updates on the digital subscription front, it would not hurt NYT to release some fresh figures on their paid subscriber count (which are expected to have increased since July) to pacify its investors.

See our full analysis and $9 price estimate for NYT

1. Wall Street Journal: New York Times Ad Revenue to Slide [↩]
2. Paywall Success? New York Times has 224,000 digital subscribers [↩]