The New York Times Needs A Revenue Boost To Ignite Stock

Summary

• The New York Times Company has seen only modest revenue growth but improved operating results.
• Management has focused on bundling products and increasing licensing revenue.
• Topline revenue growth has continued to drop post pandemic, so management needs to either develop or acquire properties to reignite revenue growth and new bundling opportunities.
• I'm Neutral (Hold) on NYT for now.

Investment Outlook

The New York Times Company (NYSE:NYT) has produced modest revenue growth but improved operating results in recent quarters.

Management has focused on the opportunities of bundling various products and increasing its licensing revenue.

However, topline revenue growth rate has continued to drop post-pandemic.

Until management can reignite growth, either through product development or acquisition, I’m Neutral (Hold) on NYT.

NYT’s Model And Approach

The New York Times derives revenue from various sources such as Subscription, Advertising, the Athletic and Other revenue.

Notably, the fastest growing segment in percentage terms is from The Athletic while its largest revenue segment, Subscription, is growing at the slowest rate of growth.

The second-fastest growing segment, Other Revenue, includes licensing or syndication revenue from selling feeds to services like Apple News+ and others.

The company is focused on maximizing this revenue, as these large deals are almost "found money" to content producers like the NYT.

Management has been focusing on bundling various offerings in order to increase customer loyalty, drive revenue diversification and provide opportunities for cross-selling and upselling.

It has made good progress, with 4.2 million subscribers out of its 9.7 million purchasing more than one product or buying a bundle, per the chart as of the end of 2023 shows below:

Recent Financial Trends And Valuation

Total revenue by quarter (columns) has risen only moderately due to relatively muted growth in its major revenue segment of Subscriptions. Operating income by quarter (line) has turned up because of a rise in gross profit, likely due to its increasing revenue in non-Subscription segments.

Gross profit margin by quarter (green line) has risen as a result of improved cost discipline; Selling and G&A expenses as a percentage of total revenue by quarter (orange line) have produced higher paid marketing results due to bundling and increased opportunities for greater marketing efficiencies.

Earnings per share (diluted) have moved up sharply as a result of increasing operating leverage on moderately growing revenue:

(All data in the above charts is GAAP.)

In the past 12 months, NYT’s stock price has risen 10.8% versus Gannett Co.’s (GCI) fall of 23.16%:

The major metrics table is shown here and indicates strong free cash flow but moderate revenue growth:

(Source: Seeking Alpha)

Although NYT isn’t an enterprise software company, the Rule of 40 performances illustrates its growth versus operating margin results, and is shown here, with revenue growth being relatively muted and pulling down this metric’s performance:

(Source: Seeking Alpha)

Why I’m Neutral On The New York Times Co.

NYT management appears to have done a good job in maximizing the bundling, cross-selling and upselling revenue potential of its customer base.

It also has assembled a variety of online properties or products that assist in that bundling strategy.

But it can only go so far and only provide so many more opportunities on an existing customer base, and I’m seeing relatively modest revenue growth even with that success.

In my view, NYT will need to develop or likely acquire additional properties to include in the bundle, broadening its audience and addressable market in the process if it wants to meaningfully increase its topline revenue growth.

I prepared a sentiment visualization from management’s most recent conference call:

Management has reported "headwinds" and "challenging" conditions in the online advertising market, which makes up a significant portion of the company's revenue, and it will always be subject to "volatile" conditions in the ad market.

That volatility will tend to be a drag on the stock, all other things being equal, as investors generally place a premium on predictable and stable results and discount stocks that exhibit greater volatility.

As to a potential valuation of NYT, my calculation indicates the stock may be fully valued on a free cash flow basis, given generous growth assumptions:

The biggest takeaway investors should have regarding NYT’s prospects can be shown in the dropping revenue growth percentages, as shown in the chart here:

Although the NYT produced reasonably strong revenue growth during the pandemic, its year-over-year growth results have generally continued to drop in its aftermath.

With the most recent earnings release, the stock has dropped materially, perhaps as investors have been unimpressed by its anemic growth results and downward trend.

So, until management can develop or acquire meaningful topline revenue growth, I’m Neutral (Hold) on NYT.