During The New York Times Company's ( NYT ) Q1 2011 earnings conference call, management discussed the negative impact that the recent algorithm changes in Google ( GOOG ) have had on NYT. Specifically, the company showed concern regarding the loss of traffic for its site About.com, a consumer-focused website that provides advice and information on topics ranging from cooking to construction. New York Times competes with News Corp's ( NWS ) The Wall Street Journal (WSJ) as well as internet-based outlets like Yahoo ( YHOO ), Google and AOL ( AOL ).
Our price estimate for NYT stock, at $9.19 is about 5-10% above market price.
Google Algorithm Changes Affect NYT
Google does not disclose its exact algorithm changes. Still, we know that the recent update aims to reduce the search ranking of "low-quality" sites. As per Google, this change could affect around 12% of search queries. During the earnings call, management mentioned that design changes in Google's algorithm had a negative impact on advertisement click through rates. About.com also took a hit from the change.
According to NYT management:
Design changes in cost-per-click advertisements served by Google had a negative effect on click through rates in the quarter, and we expect that to be the case through the second quarter as well. About also experienced a moderately negative impact on page views from the algorithm changes Google implemented in the quarter.
We estimate that About.com accounts for around 14% of the company's stock value.
So About.com's traffic could suffer in the near-term. The real issue is whether these concerns can be resolved. Should these concerns persist, there could be downside to our $9.19 price estimate for NYT . You can examine this affect by dragging the trend line in the modifiable chart above.