The New York Times (NYT) recently reported a 12% year-over-year decline in its print advertising business for Q1 of 2010 compared to same period last year, primarily as a result of the on-going macroeconomic declines in the broader ad market. Furthermore, the company is facing rising competitive pressure from News Corp’s (NWS) Wall Street Journal (WSJ), which is launching a NYC metro edition and aggressively luring new advertisers.
We estimate that the print advertising business constitutes a third of the $11 Trefis price estimate for NYT’s stock, making it the most valuable business for the New York Times. There could be a downside of 15% to the Trefis price estimate if NYT’s US print ad market share were to stagnate around 11% as a result of greater competition from the WSJ rather than increasing to 16% share as we forecast.
Higher NYT Print Ad Market Share Expected
NYT’s ad revenues have been declining over the past few years primarily as a result of the macroeconomic downturn in the ad market. Although the ad market has shrunk in recent years, we estimate that the New York Times has gained a small amount of ad market share during this period and that future market share gains can help offset some of the negative impact of the ad market decline.
We forecast that NYT will continue to gain market share from 11% in 2009 to around 16% by the end of Trefis forecast period. Based on the declines in the ad market and the increase in NYT market share that we forecast, this implies that NYT print ad revenues will trend slightly downward to $500 million by the end of the Trefis forecast period.
WSJ Competing on Ad Prices and NYC Metro Content
The WSJ has taken initiatives to compete with The New York Times by recently launching a new metro edition staffed with about 35 journalists covering only the New York City area. WSJ has also dramatically lowered its advertising rates to compete with NYT.
We believe these tactics could give WSJ a short-term edge over NYT in attracting the diminishing print ad dollars; however, the long-term success of WSJ’s initiative is dependent on the quality of the newspaper’s content and its ability to attract readers.
NYT’s High Quality Content Will Help It Retain Readers and Advertisers
The New York Times has won more than 100 Pulitzer prizes to date, outdoing any other news organization. It won three Pulitzer prizes in Q1 2010 for its high quality content. The newspaper boasts a loyal reader base that will be hard for competitors like The Wall Street Journal to win over.
15% Downside to NYT’s Stock Market Share Stagnates
Although we forecast that NYT’s share in the print advertising market will increase to about 16% over our forecast period, there could be a downside of about $1.50 (15%) to the $11 Trefis price estimate for NYT’s stock if NYT market share were to remain stagnant around 11%.
Disclosure: No positions