Bullish on NY Times

Zacks Equity Research
August 9, 2012

Amidst an economy, which has not completely awakened from a state of hibernation, The New York Times Company (NYT) has been moving on, keeping its head high as it posted better-than-expected results for the second consecutive quarter of fiscal 2012.

The New York Times Company’s second-quarter 2012 earnings of 14 cents a share beat the Zacks Consensus Estimate by a penny, and rose 27.3% from 11 cents earned in the prior-year quarter. The quarter reflects a favorable response to the digital subscription packages, increase in circulation revenue and fall in attrition rate as subscribers of the New York Times’ print version are able to access content or articles online as well as on all applications of The Times for no additional charge.

The New York Times Company’s top line portrayed a marginal growth. After a slight decline of 0.3% in the first quarter, total revenue rose 0.6% to $515.2 million in the second quarter, and also surpassed the Zacks Consensus Estimate of $509 million. The increase in top line was led by strong circulation revenue.

The diversified media conglomerate hinted at improving advertising revenue trends in the third quarter of 2012 compared with the second quarter on the back of enhanced digital advertising performance.

Diversifying Business Model

We remain impressed with The New York Times Company’s efforts to add diverse revenue streams, which include a circulation pricing model and a pay-and-read model for NYTimes.com, the International Herald Tribune and BostonGlobe.com, to make it less susceptible to the economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its portfolio.

Despite hiccups in the economy, what still promises a revenue generation is The New York Times Company’s pricing system for NYTimes.com, which was launched on March 28, 2011. The company notified that the number of paid digital subscribers for The Times and the International Herald Tribune reached 509,000 at the end of the quarter, portraying a jump of about 12% since March 18, 2012.

The company also launched a pay and read model for BostonGlobe.com for a weekly subscription of $3.99. The number of paid digital subscribers reached 23,000 at the end of the quarter, representing an increase of 28% since March 18, 2012.

The publishing industry has long been grappling with flagging advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content.

Another media conglomerate, News Corporation (NWSA), has also moved towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content of The Times of London and Sunday Times of London effective June 2010.

Other Initiatives

In an effort to offset the declining revenue and shrinking market share, publishers are scrambling to slash costs. The New York Times Company has been realigning its cost structure and streamlining its operations to increase efficiencies, and in turn the operating performance.

The company is also offloading assets that bear no direct relation to the core operations. The New York Times Company recently divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million.

Another example of shedding the assets by the company is the sale of Regional Media Group, which has been struggling with shrinking advertising revenue.

Waning print advertising revenue, in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers and concentrate on its online activities. The decision to divest the division is also considered part of the cost containment efforts undertaken to stay afloat in this turbulent environment.

Holds Zacks #2 Rank

The New York Times Company remains committed to contain costs, strengthen balance sheet, and rebalance portfolio. Currently, we have a long-term ‘Outperform’ recommendation on the stock. However, the company holds a Zacks #2 Rank that translates into short-term ‘Buy’ rating.

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