While the New York Times and the rest of the newspaper industry have taken measures to strengthen their balance sheets over the past several years, it may simply not be enough. Having just adapted their business model to take advantage of the shift to online news, the trend in news delivery is shifting to mobile, and this may prove too difficult for NYT to monetize.
The New York Times' business includes newspapers, Internet ventures, and investments in paper mills. The major newspapers include the flagship New York Times and the Boston Globe, and Internet ventures include their accompanying websites, NYTimes.com and BostonGlobe.com. The company derives 51% of its revenues from advertising and 42% from newspaper circulation, with the remainder coming from other investments.
Thesis & Catalyst For New York Times Co. (NYT)
In my opinion, the shift to mobile news will just prove too difficult to monetize. Much more tech-savvy companies than NYT have struggled with the monetization of mobile ads. For details on this, read any analyst's report on Facebook (FB), which is much better positioned than NYT to capitalize on mobile ads and is struggling with it regardless.
My main reason that I consider NYT a short candidate is plain and simple valuation. Analysts' consensus calls for NYT to earn $0.49 per share for the current fiscal year, and stagnant earnings for the next few years, with $0.51 and $0.50 projected for fiscal years 2013 and 2014, respectively. This means that the stock is trading at 17.3 times current year earnings with zero growth projected, which is simply ridiculous.
While the company has taken significant measures to reduce debt over the past few years, it still carries approximately $700 million in long-term debt, and has around $280 million in cash. In my opinion, this is still too much debt for a company whose market cap is only around $1.23 billion. It is especially too much debt to justify the kind of multiples NYT is trading at.
Further helping to make the case against NYT is the fact that the competition is simply much cheaper. For example, Washington Post (WPO) trades at just over 16 times current year earnings, and has a much better cash position ($720 million in cash vs. $452 million debt). Gannett (GCI), which is the largest name in the space, publishes about 100 daily newspapers and over 500 other periodicals. GCI trades at only 8.2 times current year earnings, and unlike NYT, it is expected to grow its earnings significantly over the next several years.
To sum it up, not only is the landscape of its core business shrinking, but NYT looks like the most expensive name in its sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.