NY Times' Digital Sales Won't Make A Big Impact For At Least 4 Years

New York Times Co (NYSE: NYT)'s core business sector has been experiencing a secular decline, and although the company has been expanding its digital business, revenues from this segment are unlikely to contribute significantly to total revenue for at least four years, Argus’s John Eade said in a report. He maintains a Hold rating on the stock.

Declining Core Business

New York Times has been witnessing continued weakness in ad revenue, analyst Eade mentioned. The company reported its Q3 adjusted earnings per share at $0.06, down from $0.09 a year earlier, although beating the consensus expectation of $0.04. Revenue came in at $363.5 million, declining 1 percent year-over-year, weighed down by lower advertising revenue offsetting growth in circulation revenue.

In Q3, New York Times acquired Wirecutter and Sweethome for approximately $30 million.

Eade reduced the EPS estimate for 2016 from $0.67 to $0.55 citing “recent revenue and cost trends and management’s projections.” The EPS estimate for 2017 has also been reduced from $0.73 to $0.57, representing ~3.5 percent growth.

Growth Slow In Digital Business

New York Times has been expanding its digital business and migrating print products to the online space. The company expressed its commitment to reducing costs to increase the investment in digital initiatives. Although no guidance has been provided for Q4, management expects digital-only subscription revenue growth of around 20 percent.

The analyst commented, however, that the company’s digital revenues “will not account for the majority of revenue for at least another four years,” at the current pace of growth.

“In the near term, earnings will continue to be driven by circulation revenues and cost cutting, although over the long term, the deeper that management cuts, the less attractive the core business – industry-leading journalism – will be,” Eade pointed out.

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