NY Times Intrinsic Value Analysis Shows It's Still Overvalued

Henry Blodget at Silicon Alley Insider working with 24/7 Wall Street has put up a seven-point plan to save The New York Times (NYT). The follow-up is here. This is our contribution. A valuation of the intrinsic value of the company with some pretty pessimistic assumptions. The model is interactive and the assumptions can be adjusted to change the valuation.

• Valuecruncher valuation model of NYT shares with interactive assumptions

Valuecruncher produces a valuation of US$7.66 for NYT. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model), not a target price. This valuation is 19.8% below the current share price of US$9.55.

Assumptions

• Revenue: Reuters aggregates six analysts covering NYT and these produce mean estimates of 2008 and 2009 revenues of US$2.99 billion and US$2.92 billion respectively. For our analysis we have used US$2.975 billion in 2008, US$2.835 billion in 2009 and US$2.725 billion in 2010.
• Profitability: We have used an EBITDA margin of 14.0% flat to 2010.
• Capital Expenditure: We have assumed capital expenditures of US$150.0 million in 2008 then US$75.0 million in 2009 and 2010. We have then assumed US$150 million per annum moving forward.
• Discount Rate: 8.0%.
• Terminal Growth Rate: 0%. We have assumed zero growth moving forward. If we factor in any growth at all this positively impacts the valuation.

Our analysis incorporates the cash and debt the NYT balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None

Comments

[Doug Poretz:]

I think the disruption in the communications business is going to be dramtic -- much more so and much sooner than would justify the estimates in this model, even if it is currently considered pessimistic.

Allow me to offer the perspective of someone who has spent four decades in the communications business, prinarily in public relations, with a 20-year focus in investor relations, and more recently as co-founder and partner of a pretty successful full service communications firm (about 100 people, based in DC).

Advertisers (that is, those who generate the revenue for papers) are about to go through a major re-conceptualization of their communications campaigns. A drive to efficiency, exacerbated by the recession, will force advertisers to think much more robustly about how they get their messages to their audiences, in terms of impact of presentation, selection of the targets, cost efficiency, and the ability to create a sale immediately. That does not bode well for newspapers. From my perspective, I see this shift coming sooner than is generally predicted.

I have an article called "The Message Is The Medium: Prepare for a coming change in communications campaigns" in my blog deathoftime.com -- I also have some related views about what I think is going to happen to communications firms (ad and pr agencies, etc.) if you follow those stocks.

2008 Oct 27 09:47 AM