The New York Times Company (NYT) recently posted lower-than-expected first-quarter 2011 results, reflecting sagging advertising and circulation revenues. The quarterly earnings of 2 cents a share missed the Zacks Consensus Estimate by a penny, and dropped substantially from 11 cents earned in the prior-year quarter.
The Zacks Consensus Estimate had remained stagnant prior to the earnings release with none of the 5 analysts following the stock revised their estimates in the last 30 or 7 days.
On a reported basis, including one-time items, the company posted quarterly earnings of 4 cents a share, down 50% from 8 cents delivered in the year-ago quarter.
The New York Times registered a drop in top-line during the quarter. After declining 2.9% in the fourth quarter of 2010, total revenue slipped 3.6% to $566.5 million in the quarter under review from the prior-year quarter, and also fell short of the Zacks Consensus Estimate of $570 million.
The ongoing slump in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers. Total advertising revenue slid further by 4.4% to $298.9 million in first-quarter 2011, as against a fall of 3.1% in fourth-quarter 2010.
By segment, News Media Group revenue tumbled 3.2% to $535.4 million. Advertising revenue dropped 3.7% to $269.2 million. Print advertising fell 7.5%, whereas digital advertising jumped 14.9%. Circulation revenue declined 3.7% to $228 million due to a fall in the copies sold. Adjusted operating profit dipped 24.7% to $57.3 million due to fall in advertising and circulation revenues.
About Group segment’s revenue fell 10.2% to $31.1 million due to a fall in cost-per-click advertising.Adjusted operating profit fell 12.6% to $17 million, reflecting fall in advertising revenue.
Revenue for New York Times’ Digital business, which includes NYTimes.com, About.com, Boston.com, climbed 6.1% to $95.9 million, and now accounts for 16.9% of total revenue, up from 15.4% in the prior-year quarter. Digital advertising revenue jumped 14.9% to $53.9 million.
Online advertising has now become an integral part of the company’s revenue stream with advertisers migrating to the Internet driven by increasing online readership and lower ad prices than print.
The publishing industry has long been grappling with sinking advertising revenue, with the recent global economic meltdown making the situation even worse. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant.
To curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content.
The New York Times Company on March 28, 2011 launched a pricing system similar to that of the Financial Times’ metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy full access to its articles on phones, tablet computers and the Internet.
The New York Times Company has fixed monthly charges of $15 for access to more than 20 articles on its website and a smartphone application; $20 for unlimited access online and on Apple Inc.‘s (AAPL) iPad tablet computer application; and $35 for online, smartphone and iPad application.
The company also indicated that the users of NYTimes.com will be able to read 20 articles per month without spending a penny. However, readers visiting The New York Times Company’s website via blog links or social-media sites such as Facebook or Twitter will be able to access unlimited number of articles. But traffic reaching the company’s website through search engines such as Google Inc. (GOOG), Microsoft Corporation‘s (MSFT) Bing and Yahoo Inc. (YHOO) will be able to view five articles per day before being asked for a subscription.
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. However, The New York Times Company notified that within the three weeks of launch the number of paid digital subscribers crossed 100,000 but did not provide any outlook as to conversion and retention rates.
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.
The New York Times Company also notified that it has been effectively managing its operating costs despite the rise in newsprint prices. Operating costs, excluding one-time items, portrayed a marginal increase of 0.3% to $506 million during the quarter. Management cautioned that given the industry trends, newsprint prices are expected to rise in the second half of fiscal 2011.
The company ended the quarter with cash and short-term investments of $352.3 million and total debt and capital lease obligations of approximately $998.5 million. The New York Times Company incurred capital expenditures of approximately $10 million during the quarter.
Management now anticipates capital expenditures between $45 million and $55 million for fiscal 2011. The New York Times Company remains committed to streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio.
Currently, we have a long-term ‘Neutral’ rating on The New York Times Company. However, the company holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
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