The current economic situation doesn't seem promising for
publishing companies, who are bearing the brunt of waning
advertising demand. Amidst such a scenario, The New York
Times Company ( NYT ) remains no exception.
The company posted a loss per share of 1 cent that significantly
missed the Zacks Consensus Estimate of earnings of 8 cents but
remained flat compared with the prior-year quarter.
On a reported basis, including one-time items, the company
posted quarterly earnings of 2 cents a share that dropped
substantially from 10 cents earned in the year-ago quarter.
However, the quarter reflects favorable response to the digital
subscription packages and increase in circulation revenue. But,
these failed to offset diminishing print and digital advertising
revenues.
Publishing companies have been divesting assets that have no
direct relation to the core operations. The New York Times Company
on September 24 completed the sale of About Group, which it
acquired in 2005, to InterActiveCorp ( IACI )
for a consideration of $300 million. In October, the company sold
its stake in Indeed.com, a job portal, for approximately $167
million.
Another example of shedding assets by the company is the sale of
Regional Media Group in December 2011, which had once been the part
of News Media Group. The company now reports through one reportable
segment, News Media Group, which now includes The New York Times
Media Group and New England Media Group.
The New York Times Company's top-line portrayed a marginal
decline of 0.6% to $449 million, and also fell short of the Zacks
Consensus Estimate of $478 million attributable to drop in
advertising revenue. However, increase in circulation revenue
provided some cushion. The New York Times Media Group revenue fell
0.4% to $355.3 million and New England Media Group revenue
decreased 1.1% to $93.7 million.
The ongoing slouch in the advertising market continues to weigh
upon The New York Times Company, the publisher of The New York
Times , the International Herald Tribune , The
Boston Globe and 15 other daily newspapers. Total advertising
revenue slid 8.9% to $182.6 million in the quarter.
The New York Times Company's print advertising declined 10.9%
during the quarter. Digital advertising revenue for New York Times'
Digital business, which includes NYTimes.com, Boston.com and
BostonGlobe.com, fell 2.2% to $44.6 million, and now accounts for
24.4% of total advertising revenue, up from 22.8% in the prior-year
quarter.
The company experienced fall in all major advertising
categories. Both national and retail advertising dipped 9.5% during
the quarter. Total classified advertising dropped 7.9%. Within
classified, real estate advertising plunged 19.5%. However,
automotive and help-wanted advertising grew 2.4% and 4.1%,
respectively.
The diversified media conglomerate hinted that total advertising
revenue trends in the fourth quarter would be somewhat similar to
the third quarter.
What came as a respite during the quarter was a rise in
circulation revenue. It climbed 7.4% to $234.9 million. Management
now expects total circulation revenue to jump in the mid to
high-single digits in the fourth quarter, gaining from digital
subscription initiatives and increase in print circulation price at
The New York Times and The Boston Globe .
Total adjusted operating profit tumbled 28.7% to $34 million,
whereas operating margin contracted 300 basis points to 7.6%.
Other Financial Aspects
The company ended the quarter with cash and short-term
investments of $614.1 million and total debt and capital lease
obligations of approximately $776.9 million. The company has no
outstanding borrowings under its revolving credit facility of $125
million as of September 23, 2012.
The New York Times Company incurred capital expenditures of
approximately $5 million during the quarter. Management now
anticipates capital expenditures to be $35 million in 2012.
Let's Conclude
The company's advertising volume came under pressure as
advertisers shied away from making any upfront commitments, in an
economy which is showing an uneven recovery. The publishing
industry has long been grappling with sinking 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 seek new revenue
avenues, the publishing companies contemplated charging readers for
online content.
Despite hiccups in the economy, what still promises a guaranteed
revenue generation avenue 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 New York Times and the International Herald
Tribune reached 566,000 at the end of the quarter, reflecting
a jump of about 11% since the end of the second quarter.
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 26,000 at the end of the quarter,
representing an increase of 13% since the end of the previous
quarter.
The increase the subscriber base was due to the company's
decision to limit the number of free articles that can be read by
online traffic visiting the website of its flagship newspaper.
Online visitors cannot access more than 10 free articles per month,
which is exactly half of what the pay-and-read model offered when
the system was launched.
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 for The
Times of London and Sunday Times of London effective
June 2010.
The New York Times Company remains committed to streamline its
cost structure, strengthen its balance sheet, and rebalance its
portfolio. However, we remain apprehensive about risks that the
company faces due to its high dependence on advertising
revenue.
Currently, we have a long-term Neutral recommendation on the
stock. Moreover, the stock holds a Zacks #3 Rank that translates
into a short-term Hold rating.
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