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New York Times (NYT) Down 2.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for New York Times Co. (NYT). Shares have lost about 2.8% in that time frame, outperforming the S&P 500.

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

NY Times Q4 Earnings Beat, Subscriptions Increase

The New York Times Company reported second straight quarter of positive earnings surprise in fourth-quarter 2019. However, total revenues marginally fell short the Zacks Consensus Estimate, making the fourth consecutive quarter of miss. Nonetheless, both the top and the bottom lines improved year over year.

Notably, the company registered higher digital-only subscriptions during the quarter under review. In fact, digital advertising revenues decreased but fared better than the company’s expectation. Management now expects digital advertising to return to growth by the second half of 2020. These were enough to lift investor sentiment.

The New York Times Company also informed that it has started rolling out a price rise to a subset of tenured digital-only news subscription base. The company anticipates approximately 750,000 domestic customers to witness a price hike by the end of 2020. The company is raising the monthly price of digital-only news subscription by a couple of dollars to $17. This is the first increase since the company launched its pay model in 2011.

Let’s Delve Deep

The company delivered adjusted earnings from continuing operations of 43 cents a share that beat the Zacks Consensus Estimate of 35 cents and improved 34.4% from the year-ago period. The newspaper publisher's total revenues of $508.4 million rose 1.1% year over year but came marginally below the Zacks Consensus Estimate of $509 million.

Subscription revenues improved 4.5% to $275.3 million principally due to increase in the number of subscriptions to the company’s digital-only products. Revenues from digital-only subscriptions products (comprising news product, as well as Crossword and Cooking products) jumped 16% to $122.1 million. Management now projects first-quarter 2020 total subscription revenues to increase in the mid-single digits, while digital-only subscription revenues are projected to rise in the high-teens.

Total advertising revenues came in at $171.3 million in the reported quarter, down 10.7% year over year. In the preceding quarter, total advertising revenues declined 6.7%. Total advertising revenues in first-quarter 2020 are estimated to decline approximately 10%.

Print advertising revenues fell 10.5% to $79.1 million in the quarter under review, following a decline of 7.9% in the preceding quarter.

Digital advertising revenues decreased 10.8% to $92.2 million, following a decline of 5.4% in the preceding quarter. The fall in digital advertising revenues were due to strong comparisons with the prior year in direct-sold advertising in core digital platforms and creative services, partly offset by growth in podcasts. Management now expects digital advertising revenues to fall in the mid-single digits in first-quarter 2020.

We note that other revenues surged 30.2% to $61.8 million during the quarter under review primarily due to revenues earned from television series, The Weekly, and licensing revenues related to Facebook News. Management anticipates other revenues to increase approximately 15% in first-quarter 2020.

Adjusted operating costs rose a meagre 0.8% to $412 million during the quarter. This year-over-year increase was due to increased content costs, comprising rise in the number of newsroom staff and expenses associated to television series, The Weekly, and increased digital product development employees. This was partly offset by fall in print production and distribution advertising and marketing costs. Management now anticipates adjusted operating costs to increase approximately 5-7% in first-quarter 2020 due to sustained investment into growing digital subscription business. Total adjusted operating profit grew 2.4% to $96.3 million during the quarter under review.

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $683.9 million. The company has no remaining debt as of Dec 29, 2019. The company also raised quarterly dividend by a penny to 6 cents a share. The company incurred capital expenditures of about $16 million during the quarter. Management envisions capital expenditures of about $50-$60 million in 2020.

Wrapping Up

The New York Times Company has come a long way from being a sole provider of news content and advertising on print publications. The company is no longer restricted to print. As readers swarmed to the Internet, advertisers followed suit and so did newspaper companies. Trimmed print operations paved way for online publications that led to the development of paywalls, as adopted by the company.

The company notified that the number of paid digital subscribers reached roughly 4,395,000 at the end of fourth-quarter 2019 – rising 342,000 sequentially and 30.8% year over year. The company had earlier set a goal to reach 10 million total subscriptions by 2025.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

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