New York Times (NYT) Up 20.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for New York Times Co. (NYT). Shares have added about 20.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is New York Times due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

NY Times Q3 Earnings Top, Digital-Only Subscription Up

The New York Times Company reported fifth straight quarter of earnings beat in third-quarter 2020. Total revenues also surpassed the Zacks Consensus Estimate for the second quarter in row. While the top line declined, the bottom line improved year over year owing to reduced adjusted operating costs and lower effective tax rate.

Notably, the digital-only subscriptions increased during the quarter under review. However, we note that both print and digital advertising revenues showcased a decline from the year-ago period. Looking into the fourth quarter, management anticipates a sharp fall in advertising revenues due to the coronavirus pandemic.

Meredith Kopit Levien, president and CEO, said, "For the second quarter running, total digital revenue exceeded print revenue. And for the first time, total digital-only subscription revenue exceeded print subscription revenue, making digital-only subscriptions not just the central engine of the Company’s growth, but on its way to being our largest revenue stream.”

Let’s Introspect

The New York Times Company delivered adjusted earnings from continuing operations of 22 cents a share that beat the Zacks Consensus Estimate of 15 cents and improved substantially from 12 cents in the year-ago period. The newspaper publisher's total revenues of $426.9 million outpaced the Zacks Consensus Estimate of $413 million but declined marginally by 0.4% on a year-over-year basis.

Subscription revenues improved 12.6% to $301 million primarily due to increase in the number of subscriptions to the company’s digital-only products, which include news product, and Cooking, Games (previously Crossword) and audio products. Revenues from digital-only products jumped 34% to $155.3 million.

Print subscription revenues fell 3.8% to $145.7 million on account of fall in retail newsstand revenues. Revenues from domestic home delivery subscription products rose 2.5% during the quarter under review.

The company ended the quarter with approximately 6,894,000 subscriptions across its print and digital products. Management notified that the number of paid digital-only subscribers reached roughly 6,063,000 at the end of the third quarter – rising 393,000 sequentially and 2,010,000 year over year. Of the 393,000 total net additions, 275,000 came from the digital news product, while remaining came from Cooking, Games and audio products.

Management now projects fourth-quarter 2020 total subscription revenues to increase about 14%, while digital-only subscription revenues are projected to surge approximately 35%.

Total advertising revenues were $79.3 million in the reported quarter, down 30.2% year over year. In the preceding quarter, total advertising revenues had slumped 43.9%. Total advertising revenues in the fourth quarter are estimated to decline approximately 30%.

Print advertising revenues fell 46.5% to $31.5 million in the quarter under review, following a decline of 55% in the preceding quarter. The metric declined as the ongoing pandemic further accelerated secular trends, severely impacting the luxury, entertainment, media and home furnishings categories.

Digital advertising revenues decreased 12.6% to $47.8 million, following a decline of 31.9% in the preceding quarter. The fall in digital advertising revenues was due to lower creative services revenues. Management expects digital advertising revenues to decrease in the mid-teens in the fourth quarter, thanks to the ongoing pandemic.

We note that other revenues declined 2% to $46.7 million during the quarter under review due to fewer television episodes and decline in revenues from commercial printing and live events. These were partly mitigated by increased revenues from licensing revenues related to Facebook News and affiliate referrals from Wirecutter.

Management anticipates other revenues to decline approximately 15% in the fourth quarter owing to fewer television episodes and lower revenues from live events.

Adjusted operating costs fell 3.7% to $370.4 million during the quarter. Management anticipates adjusted operating costs to be flat or down in the low-single digits in the fourth quarter. The company is deferring non-essential spending but intends to sustain investment into growing digital subscription business. Total adjusted operating profit surged 28.3% to $56.5 million during the quarter under review.

Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $800.1 million. The company has a $250 million revolving line of credit through 2024. As of Sep 27, 2020, there were no outstanding borrowings under the credit facility, and neither the company had other outstanding debt obligations. It incurred capital expenditures of about $8 million during the quarter. Management envisions capital expenditures of about $40 million in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a flat trend in estimates review.

VGM Scores

Currently, New York Times has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

New York Times has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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