We are reiterating our long-term Neutral recommendation on The New York Times Company (NYSE:NYT), a diversified media conglomerate, with a price target of $10.00.
The publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers, is effectively managing its costs, which helped it post better-than-expected fourth-quarter 2010 results. The quarterly earnings of 46 cents a share beat the Zacks Consensus Estimate of 34 cents, and rose 4.5% from 44 cents earned in the prior-year quarter.
However, The New York Times witnessed a drop in the top line during the quarter. After declining 2.7% in the third quarter, total revenue in the fourth quarter slipped 2.9% year over year to $661.7 million, and also fell short of the Zacks Consensus Estimate of $664 million.
The ongoing slump in the advertising market continues to weigh upon The New York Times Company. Total advertising revenue slid 3.1% to $385.8 million, as against a marginal fall of 1% in third-quarter 2010.
Advertising remains a significant source of revenue for the company, which in turn depends upon the health of the economy. The macroeconomic factors such as sluggish business spending, high unemployment and falling home sales may adversely affect the level of national, retail and classified advertising revenues, as advertisers cut their budget in response to weak economic conditions.
In an effort to offset the shrinking advertising revenue and market share, the publishing companies are seeking new revenue avenues, which include charging readers for online content. Newspaper companies have been remodeling and restructuring themselves to better align with the growing need of marketers, targeting younger people, affluent households and other demographic groups with multiple Web and print publication.
Newspaper companies are also adapting to the changing facet of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its fold.
The New York Times Company recently introduced the pay-and-read model of NYTimes.com. The company has adopted the Financial Times' metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy access to its full articles on phones, tablet computers and the Internet. However, the company indicated that the users of NYTimes.com will be able to read 20 articles per month without spending a penny.
Another media conglomerate, News Corporation (NASDAQ:NWS) has already taken a similar leap toward an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content of The Times of London and Sunday Times of London, effective June 2010.
We believe the success of the pay model depends on the accessibility of new articles across the web. People will be reluctant to shell out if content is available free of cost elsewhere. The Wall Street Journal and The Financial Times were the pioneers of the subscription-based model. Way back in 2005, The New York Times Company had attempted to charge readers for online access to its columnists on a platform known as TimesSelect but rescinded it after two years, as it failed to generate enough revenue.
Currently, we have a long-term Neutral rating on The New York Times Company. The company holds a Zacks #4 Rank, which translates into a short-term Sell rating.