NYT Can Wobble to $9 on Digital Growth as About.com Suffers

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The New York Times ( NYT ) recently announced its Q2 results. Overall print advertising revenues continued to decline although this was partially offset by growth in digital advertising revenues. The NYTimes.com digital subscription growth was consistent with our forecasts reaching about 224,000 paid subscribers by the end of Q2. However, revenues from the About group fell by over 17% for the quarter - an issue we discussed in Google's algorithm changes and their impact on About.com . NYT competes with publications like the Wall Street Journal owned by embattled News Corp's ( NWS ) as well as Internet-based outlets like Yahoo ( YHOO ), Google ( GOOG ) and AOL ( AOL ).

We have a revised price estimate of $9 for NYT stock , which is roughly the same as the current market price. We have adjusted the price based on adjustments to revenue per page forecasts for About.com, adjustments to circulation-based revenues for NYT as well changes in the net cash/debt position over the last quarter.

Digital Subscriber Growth in Line with Expectations

With print advertising declining by 7.5% and 6.4% in the last 2 quarters, digital advertising should increasingly constitute a majority of NYT's overall value as consumer preference increasingly shifts towards online information. Consistent with our Q2 earnings preview note for NYT, digital subscription has taken off for NYTimes.com without any significant operational hurdles. With the paid subscriber base of around 224,000 by the end of Q2 2011, we retain our forecast trends for NYT online subscribers to reach around 500,000 by the end of this year.

About.com Hit Hard by Google's Algorithm Changes

Although About.com constitutes only around 15% of NYT's stock value, it seems to have been hit especially hard due to Google's algorithm changes in early 2011.  These changes were designed to reduce rankings for low quality sites. Revenue declines from About.com was much more pronounced at 17% this quarter compared to a 10% decline in Q1 2011 (year-over-year) as cost-per-click rates fell further. Consistent with these developments, we have slightly lowered our revenue-per-page view forecasts for About.com which should contribute to a downside to NYT's stock price estimate.

See our full analysis and $9 price estimate for NYT



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AOL , GOOG , NWS , NYT , YHOO

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