What a difference a presidential administration can make. Ever since United States President Donald Trump declared The New York Times to be a failing news publication, shares of the paper have soared.
The Trump era has been good one for New York Times (NYT) shareholders; in fact, this is something we first discussed a few months following Trump's arrival in the White House, once again in June 2017 and one more time earlier this year. When we first looked at the NYT-Trump phenomenon in March 2017, NYT was trading around $14.56. In early June, shares were hovering at $33 - a gain of more than 220%. We believe that there is more good news ahead for shareholders as the second half of the Trump administration lumbers forward.
(Source: New York Times)
The modern history of the New York Times is one of resiliency; by many accounts, it could have failed like many other American newspapers have in the era of digital publishing. The New York Times has outlasted old regional competitors such as the New York Herald Tribune and the Journal American, publications that did not manage to survive the advent of radio and television news broadcasting. If Trump would refer to the NYT as a declining business instead of a failing enterprise, he wouldn't be so off-base.
Conservative Company With a Liberal Audience
While the reporting style of the New York Times is conservative, its audience tends to be liberal. We believe that this will further drive interest as the election approaches because of the large democratic field. With Trump as the incumbent candidate seeking reelection, there's not much excitement to be derived from the Republican primaries; the Democratic field, on the other hand, is not only deep but also ripe for NYT reporting. By the time we get to the debate stage of the 2020 elections, the "Trump Bump" will likely continue to boost NYT readership and subscriptions, which the company estimates will reach 10 million by the year 2025, a reasonable goal when considering that the most recent quarterly statement reported 4.5 million subscribers.
A Look At Earnings
On May 8th, the New York Times reported Q1 revenue of $439.06 million, exceeding the consensus of $435.78 million. Mark Thompson, president and chief executive officer, The New York Times Company, said, "we had another strong quarter and we're continuing to optimize our business to deliver on our goal of reaching 10 million total subscriptions by 2025. For the quarter, we added 223,000 net new digital-only subscriptions, of which 144,000 were to our core news product, for a total of 4.5 million subscriptions."
The company noted that total advertising revenues in the second quarter of 2019 are expected to be approximately flat compared with the second quarter of 2018, and that digital advertising revenue is expected to increase in the mid-teens.
We are encouraged by the strong first quarter, especially the fact that subscription revenues made up two-thirds of the company's revenues, and that for the first time, digital-only subscription revenue was more than a quarter of total company revenue. We believe that interest in Trump and political controversies will continue to drive growth in digital subscriptions and drive shares even higher.
Our Take on Valuation
We believe that shares of the New York Times are not overvalued at current levels. We believe that there will be a two-year uptick in revenue growth to 15% from 6% and an expansion in operating margin to 15% from the current 10.6%.
However, we can see shares going even higher. We believe that the CEO's recent goal of 10 million subscribers by 2025 is achievable, and that would imply upside to our revenue estimates and a price of $39.50. We believe that shares could even have a valuation of $44.27 if growth ramps down over a longer 8-year time period after the uptick.
What's Next For The New York Times?
While we believe that digital subscriptions will continue to climb in the lead-up to the 2020 election, we believe that the post-election outlook for shares is a little less certain. If Trump is reelected to a second term, we believe that the Trump Bump impact can continue. From tweeting to threatening tariffs, Trump has succeeded in generating daily controversy, and we don't see this trend letting up in a second term.
If the Democrats prevail in the election, we believe that there could be Trump Bump reversal if the New York Times is unable to continue the uptick in digital subscriptions through its other services. It seems aware that readers cannot survive on political reporting alone, and the paper has been venturing into other digital channels, such as podcasts, crossword apps and cooking apps. To prove that it is not an old media dinosaur, the NYT is getting into cable television and streaming video with "The Weekly," a forthcoming show that will complement its current podcast, "The Daily." Another upcoming project is Parenting, a digital portal for young families, which will be offered as a standalone subscription or as part of a bundled package. In Q1, the NY Crossword product passed the 500,000 total subscription mark, making it the "5th largest digital subscription product from a U.S. news provider."
In the company's Q1 earnings release on May 8th, Thompson acknowledged that, "We will continue to invest in our journalism, product and marketing at elevated levels to attract and retain large numbers of new subscribers to The Times."
With all the above in mind, it is not surprising to learn that NYT stock received a consensus "Buy" recommendation from six major analyst firms on June 6. The price range runs from $39 to $41, and the most improved recommendation came from Zacks Investment Research, which upgraded from a "Hold" rating back in February to a current "Strong Buy."
We believe that Trump will not let up on his criticism of the New York Times, and that these comments will continue to drive interest to the articles and send shares higher. On June 9th, he was at it again, attacking the New York Times' coverage of the controversy about Mexico tariffs. In his scathing tweet, Trump said that recent coverage in the New York Times was "[a]nother false report in the Failing @nytimes...[t]he Failing @nytimes, & ratings challenged @CNN, will do anything possible to see our Country fail! They are truly The Enemy of the People!"
Between interest in ongoing political controversies, trade tensions and a crowded field for the 2020 Presidential election, the Gray Lady will be on track to becoming known as the Green Lady for its shareholders.
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Disclosure: I am/we are long NYT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.