Since March 6, 2017, we have issued five buy recommendations for The New York Times (NYSE:NYT). At that time, NYT traded at $14.60. Today, the stock is trading around $44.20 for a stunning increase of 302%.
We continue to recommend the Gray Lady as a buy. The recent controversies surrounding the resignation of two prominent editors have stoked curiosity that we believe will lead to more growth in subscriptions. In addition, we believe the George Floyd/BLM protests as well as the continuing polemics between President Trump and the NYT will further drive share prices higher.
Recently, two prominent editors resigned from the NYT. Each resignation had its basis in controversies over publishing divergent opinions. The resignations made headlines on front pages across the country and the world, and the result has been growing attention to the venerable media institution, which has been publishing "news" since 1851.
The first resignation came from Times Opinion section editor, James Bennet. Mr. Bennet approved the publication of an op/ed written by Senator Tom Cotton (R), which called for U.S. military intervention under the Insurrection Act during the protests following the death of George Floyd.
The second resignation came from op/ed editor, Bari Weiss. She published a blistering letter of resignation on her blog heavily critical of a toxic environment that smothers any thought other than what liberal progressive staffers at the NYT deem politically correct.
Both Mr. Bennet, hired in 2016, and Ms. Weiss, hired in 2017, had been brought in to broaden the scope of discussions and opinions published by the Times. Both left after their efforts failed.
The noteworthy resignations also call attention to questions surrounding the NYT's ability to increase its market penetration. The focus of the reporting is increasingly tilted towards current liberal and progressive thinking. Thus, analysts now question whether the media outlet will begin alienating centrist and conservative customers. The assumption is that centrist and conservative subscribers will abandon the paper as more conservative options become available. One America News Network is an example, although it does not publish a print version of its news. Even social media is drawing conservative voices away from stalwarts Facebook and Twitter. Parler is growing rapidly in subscribers.
However, we believe the controversy over the resignations will actually help the media giant. The Times continues to thrive in a digital world driven by headlines that result in clicks. Moreover, gaining access to the controversial content published behind the paywall means paying for a subscription.
In May, the paper reported it had added 587,000 new online subscribers for the first quarter of 2020. Its core news product currently has over 4.0 million subscriptions, and the paper gained 468,000 new digital customers in the same quarter.
In addition, we believe the recent performance in share prices supports our insights. On February 18, the stock was at $39.59. President Trump was riding the wave of a strong economy and spectacular unemployment numbers. By April 1, after the start of the coronavirus pandemic shutdowns, shares had declined to $28.44 along with the rest of the tanking financial markets.
Share prices began to recover to pre-pandemic levels reaching $39.30 on May 26. However, George Floyd died a day earlier on May 25. The protests began soon after. The Times published Senator Cotton's opinion essay on June 3. Mr. Bennet resigned on June 7. Ms. Weiss resigned on July 14.
Since then, shares in the NYT have increased to trade in the range of $44 to $45. This is close to a 16% increase. Ironically, Ms. Weiss criticized the NYT for allowing Twitter to become its ultimate editor. The current business model of the Times places a focus on growth in digital subscriptions and a decreasing reliance on traditional advertising. It is a model that currently works for the Times.
For the first quarter of 2020, the Times had over 5.0 million online customers, which is an increase of close to 1.4 million year over year. The majority of the increase is for its news products, while the balance represents subscribers to the crossword, cooking, and audio products.
Subscription revenue related to digital-only products increased 5.4%. Management expects total subscription second quarter revenue to increase between 5% and 10%. Expectations for digital-only revenue to increase closer to 25% to 30%. On the negative side, advertising will likely decline. Total advertising revenue decreased by 15.2% in the first quarter of 2020. Digital advertising revenue declined by close to 8%.
We also believe that the recent acquisition of the popular podcast Serial could also draw a new group of younger online viewers.
Overall, print newspaper circulation is declining. Both Sunday and weekday circulation levels are at their lowest since the 1940s. The highest recorded circulation for weekday papers reached 63,147,000 in 1973, and in 2018 that number had declined to 28,554,137. In addition, the NYT is third in the nation for circulation. USA Today is at the top with 1,629,090 print subscribers. The Wall Street Journal is #2 with 1,180,460 print subscribers. The NYT has 597,960 subscribers, which means its print readership accounts 0.02% of print distribution. Local newspapers continue to constitute the vast majority of readership in the United States.
Digital circulation can present challenges to determine an exact number. Keeping the paper behind the paywall discourages sharing articles to non-paying readers. Still, the NYT and the Wall Street Journal report increases of digital circulation of 27% for the NYT and 23% for the Wall Street Journal. The challenge for the Gray Lady will be to fully replace the decline in print readership with adequate gains in online subscribers.
According to its financial statements, the NYT also considers other risk factors such as its ability to produce high-quality journalism, pricing, internet visibility, brand strength in relation to competitors, its ability to attract and retain talent, and its ability to attract new readers, among other issues.
NYT remains a buy recommendation.
Its business model places an emphasis on increasing digital subscriptions rather than relying on advertising revenue.
The contentious resignations, the current political environment, and the continuing controversies surrounding the Gray Lady's capacity to attract new readers willing to pay for the Gray Lady's liberal bias reporting will only help the Times.
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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.