The New York Times Company (NYT) hinted that it expects fiscal 2010 operating profit excluding depreciation, amortization, severance and special items to improve significantly over the prior-year, buoyed by improving trends in print advertising and effective cost management.
The publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers now expects the rate of fall in print advertising revenue to tumble down to 4% in fourth-quarter 2010 from 5.8% in the third quarter.
The New York Times noted a 2% to 3% fall in operating costs in fourth-quarter 2010 due to severance costs of $25 million incurred in fourth-quarter 2009. However, excluding depreciation, amortization and severance, management anticipates operating costs to be similar to the prior-year quarter, irrespective of higher newsprint prices.
The New York Times also forecasted digital advertising revenue growth of 10% in the fourth quarter compared with a 14.6% increase in the third quarter. The company cautioned that circulation revenue in the quarter under review is expected to fall by 4% to 5% versus a decline of 4.8% experienced in the previous quarter.
We observe that the company faces a significant risk of high dependence on advertising revenues, which are driven by the health of the economy. To mitigate this, The New York Times is transmuting its business model by adding diverse revenue streams, which include a circulation pricing model and a pay-and-read model for NYTimes.com in 2011 with plans to launch a paid subscription website, BostonGlobe.com in the second half of 2011.
News Corporation (NWS) has taken adopted an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London in June 2010.
The New York Times is also adapting to the changing facet of the multiplatform media universe, which currently takes mobile, social media networks and reader application products into its fold.
Currently, we have a 'Neutral' rating on the stock. Moreover, The New York Times Company holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and correlates with our long-term recommendation.