The New York Times Stock: Solid Fundamentals, High Price (NYT)

Mario Tama/Getty Images News

With the rise of digital media and the decline of print media, companies with any physical footprint in the print media space can come across to many investors as old school and risky. The trend is clear in that there is no doubt print media, ultimately, will continue to shrink over time as digital media continues its ascent. And one company that is making this transition is news giant The New York Times (NYT). Although the company still has its legacy print operations, its digital platform continues to expand. Today, shares of the business are trading at rather pricey levels, indicating that investors anticipate a successful transition from the old way of doing things to the new way. Because of this pricing, shares likely do not have much upside in the near-term, but for long-term investors banking on continued outperformance by management, it may still be a reasonable prospect to buy into.

A continued transition to digital

The last time I wrote about The New York Times was in an article published in September of 2018. At that time, I made the case that the company still offered attractive upside for investors and I ultimately rated it a bullish prospect. I highlighted the challenges the company faced with its print business, but I was encouraged by the success it had achieved in moving into the digital subscription space. Since then, a great deal has transpired. The company has grown its digital presence significantly, resulting in stronger cash flows even as revenue has remained stuck in a fairly narrow range. The market has rewarded the company accordingly, allowing the company to generate a return for investors of 77.5%. That compares to the 51.3% return achieved by the S&P 500 over the same period of time.

When I say that revenue has remained in a fairly narrow range, I mean a narrow range indeed. Revenue in 2018 totaled $1.75 billion. It popped up to $1.81 billion in 2019 before dropping in 2020 to $1.78 billion. It’s worth noting that different parts of the company fared differently. For instance, print subscription revenue has been on a constant decline, dropping from $641.95 million in 2018 to $597.09 million in 2020. Advertising revenue suffered even more, declining from $558.25 million to $392.42 million. This all came as the number of print subscribers to the company dropped from 924,000 to 833,000 and driven by the pains associated with the COVID-19 pandemic. At the same time, revenue associated with its digital-only subscriptions rose significantly, climbing from $400.62 million to $598.28 million. This came as the number of paid digital-only subscribers for the company jumped from 3.36 million to 6.69 million.

Historical Financials

Author – SEC EDGAR Data

Net profits over this three-year window followed a similar path to what revenue did. Net profits rose from $125.68 million in 2018 to $139.97 million in 2019. But then, in 2020, profits dropped to $100.10 million. More important than profits, though, would be the cash flow figures of the business. Operating cash flow continued to climb year after year, rising from $157.12 million to $297.93 million. If we adjust for changes in working capital, however, the decline was still impressive but less meteoric. On an adjusted basis, it would have risen from $146.98 million to $217.82 million.

Historical Financials

Author – SEC EDGAR Data

Between the continued growth associated with its digital operations and a recovery following the COVID-19 pandemic, the first nine months of the company’s 2021 fiscal year came in quite strong. Revenue totaled $1.48 billion, up from the $1.27 billion generated one year earlier. This came as advertising revenue grew from $253.15 million to $320.78 million and as digital-only revenue jumped from $431.28 million to $568.38 million. Even print subscription revenue showed signs of stabilizing, declining only modestly from $448.29 million to $442.53 million. On the digital subscription side, the number of paid users jumped to 7.59 million. That represents an increase of 25.2% over the 6.06 million reported one year earlier. And it is 13.4% above what the company ended the 2020 fiscal year with.

Historical Financials

Author – SEC EDGAR Data

This surge in revenue brought with it climbing profits and cash flows. Net income expanded from $90.09 million to $150.08 million. Operating cash flow ticked up modestly from $206.68 million to $209.56 million. But if we adjust for changes in working capital, the growth was more extreme, taking the metric from $126.44 million to $178.05 million. Growth metrics aside, it is also important to point out that the financial condition of the company presently is astounding. The business has no debt on its books and has cash and cash equivalents of $681.80 million. This excludes a further $360.72 million in long-term marketable securities on its books. All this means is that these are assets that could easily be sold but that management does not intend to sell (or see a maturity of) for at least 12 months following the reporting date for the quarter in question. This means that there is fundamentally no risk of bankruptcy or anything of that nature to the business for the foreseeable future.

Years ago, the management team at The New York Times stated that their goal was to grow their digital-only subscription count to 10 million. The company has since revised that guidance, calling for its footprint in that space to be some unknown number higher. And part of the reason for that revision has been the company’s decision to acquire a new digital property called The Athletic in a deal valued at $550 million, all payable in cash. That particular property focuses on sports and other athletic content and brings with it 1.2 million paid subscribers and a newsroom filled with approximately 450 employees. The company has exhibited tremendous growth when you consider how young it truly is. After all, it was founded just back in 2016. It currently operates in 40 markets in the US, as well as in eight markets in Canada and it has a presence in various parts of Europe. Management did not provide any details on the financial picture of the business. But based on the subscription fees listed on their site, annual revenue from subscriptions should range from a low of $57.5 million to a high of $115.1 million.

Trading Multiples

Author – SEC EDGAR Data

When it comes to valuing The New York Times, the process is fairly simple. If we annualize results experienced for the first nine months of 2021, the company should be trading at a price to earnings multiple of 40. Its price to operating cash flow multiple is even lower at 21.8, while the EV to EBITDA stands at 18.4. These levels are quite lofty, especially the price to earnings multiple. But when you consider how much cash the company has, the fact that it has no debt, and that it is growing its subscription business rather rapidly, these levels don’t look all that bad.

Takeaway

Based on the data provided, I would make the case that The New York Times has performed exceptionally well in recent years. And I would say that the future also looks bright for the business. Shares today do look a bit lofty, but when you factor in all of the positives associated with the business, I cannot help but think that the company might still offer some upside potential from here. I don’t believe it is a great amount of potential. But it should be enough to appeal to long-term investors who are interested in a growth business trading at a reasonable price.

Be the first to comment

Leave a Reply

Your email address will not be published.


*