Summary
- The New York Times posted a solid of quarter of growth that narrowly missed consensus expectations.
- Shares are now 21% off their 52-week high, but still look overvalued.
- The Trump presidency has helped boost subscriptions and the New York Times appears to be doing OK in a brutal industry.
- This quarter, the company launched a television news show with the FX network. If it succeeds, television may provide more growth potential for the company.
- I read the paper, but would not invest in the stock at these levels. Absent Trump, subscription levels could fall and revenue could flatten or contract again.
Thesis
Shares of the New York Times (NYT) had reached a premium valuation going into the Q2-19 earnings report and got crushed when revenue growth came up just short of expectations and operating margins declined slightly.
Shares got hammered nearly 20% on the news. That said, things are still looking up for the New York Times. In the age of the dying newspaper, the New York Times has performed well as it has faced a litany of market challenges. The 2016 election of Donald Trump appears to have helped boost subscription levels and revenue growth. The company continues to strengthen its digital news service and digital-only subscription growth is strong.
In addition to this, the company now does television. The New York Times is a powerful news brand and should probably have a place across all media platforms. This quarter, its show called "The Weekly" launched on FX and Hulu. If this show does well, it may be the the beginning of the New York Times as a television news brand.
Despite the recent selloff, shares still look overvalued. Since Trump's election, shares are up 140%. I would wait for a more modest valuation before considering a position.
Q2-19 Results
The New York Times saw solid growth in both overall revenue (5.2%), subscription revenue (3.8%), and other revenue (29.7%). Operating margins came in lower than expected - 8.7% vs. 9.6% a year ago, but the company chalked up the increased expenses to higher newsroom staffing expenses.
The company slightly missed revenue growth expectations and shares stumbled on the news. Shares had reached a lofty valuation going into the Q2. And after the nearly 20% selloff, the company's valuation still looks stretched on both P/E and EV/EBITDA bases.
One notable bright spot was revenue growth in the Other Revenue category. Other revenue consists of sources of revenue that don't involve subscription revenue or advertising revenue. The category is broad. It includes revenue from sources such as commercial printing and office leasing. It also includes revenue from a newly debuted TV show called The Weekly, which helped account for much of the nearly 30% boost in Other Income growth this quarter.
