With the impeachment trial's opening arguments underway, all eyes are once again drawn to American political controversy. Closely covering the hearings and offering live streaming of the hearings is one of President Trump's arch-nemesis: The New York Times.
Nearly three years ago, in March 2017, we recommended that investors consider buying shares in the New York Times (NYT). At the time, NYT traded around $14.60. Currently, shares trade around $33 to $34 for an impressive increase of over 230%. We made additional buy recommendations in June 2017, March 2019, and June 2019.
We continue to recommend investing in NYT, especially with coverage of the impeachment hearings, the upcoming election season, changes the Times is making to its advertising model and positive fundamentals.
We believe that President Trump's continuing disparagement of the New York Times, which he calls "fake news" will only draw more attention to the publication and attract more subscribers. In addition, we believe the company's financial fundamentals indicate strength and growth for the "Gray Lady", despite a recent dip in advertising revenue.
Fake News Produces Real Increases in Subscriptions
The New York Times has benefited from Trump's ongoing controversies, such as the impeachment process in the House of Representatives, inquiries into alleged Russian collusion, and the Michael Horowitz IG report that reviewed the four FISA applications and the FBI's handling of the Crossfire Hurricane Investigation. The most recent news involving the U.S. killing of Iranian Maj. Gen. Qassem Soleimani in Iraq will further fuel the war of words throughout 2020.
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New York Times digital subscriptions by quarter. Source: statistica.com
Trump's tweets calling out the NYT for what he believes is biased reporting have resulted in a Trump Bump in share price. It is highly likely that Trump's anti-NYT criticism will grow in intensity as the election in November draws closer. Rather than hurt the news organization's credibility, Trump's denunciation will help the company as it has for the last three years.
Current Changes in Advertising Models Will Result in Better Engagement
In November 2019, the company predicted a drop in advertising revenue as it updates its mobile advertising model. Beginning this month, the paper will stop the automated selling of its ad space on its mobile apps. This prediction sent share prices down around 9%. However, the announcement eclipsed more positive news showing an increase of 273,000 in digital subscribers for a total of approximately 4 million.
In fact, Mark Thompson, president, and CEO of the company stated he was very encouraged by the company's growth in subscriptions. The news organization has a total of 4.9 million subscriptions, and it expects to reach 10 million total subscriptions by 2025. Readership is expanding outside of the U.S. as well, and the NYT has over 500,000 international subscriptions. The company expects that number to grow to over 2 million by 2025. The international market for U.S. news gives the NYT more opportunities to expand its offerings and increase subscriptions.
In addition, the news organization now discourages anonymous users by requiring them to register with an account. This fact will enable the company to encourage deeper engagement with the news content and greater retention rates. The organization will be able to capture more accurate data on key metrics such as total site visits, interactions per visit, bounce rates, and traffic by sources or channels. This will give the company the capability to fine-tune its digital marketing.
Fundamentals Look Strong for the Long Term
Overall NYT revenue increased by 3% despite the 7% decrease in overall advertising revenue. The decrease in advertising revenue, along with their investments in content and digital product development, resulted in a decline in adjusted operating profit to $44 million from $54 million in 2018. Total revenue increased to $428.5 million versus $417.3 million last fiscal year, although this failed to meet the $429.1 million analysts' average estimate.
Despite the softer numbers in operating profit and advertising revenue, the actions the NYT is taking now has set the company on the path to higher profits for the long term.
Operating costs increased in the third quarter from $380.8 million to $401.5 million, resulting from its release of 8 new episodes of its television show, "The Weekly." However, the company's diversification into offerings such as its podcast, "The Daily" and the television show should help to offset the decline in advertising revenue derived from its print edition. The podcast currently has over 2 million people listening to it daily.
The New York Times noted an increase in the volume of news in its fiscal third quarter last year, and the company expects this to continue through 2020 in light of the presidential election. President Trump will most likely increase his attacks on the Gray Lady as it covers the actions of his administration and his election campaign. This, along with the changes in its advertising models, will result in higher subscriptions, increased revenue, and higher profitability.
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