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The New York Times Company (NYT), Gannett Co., Inc. (GCI): This Publishing Company is Falling Victim to a Vicious Cycle

The New York Times Company (NYSE:NYT) is a hugely popular brand, but a popular brand doesn’t guarantee revenue and earnings growth.

A quick glance at the situation

The New York Times Company (NYSE:NYT) has operated in two segments: New York Times Media Group (The New York Times, International Herald Tribune, and New England Media Group (The Boston Globe,,, Worcester Telegram & Gazette,

New England Media Group has recently been sold, as has The New York Times Company (NYSE:NYT)’ 49% stake in Metro Boston (free daily newspapers in Boston). These sales are expected to free up approximately $70 million, which will be used for corporate purposes.

The New York Times Company (NYSE:NYT)

In the second quarter, The New York Times saw revenue decline 0.9% year over year to $485 million, mostly due to weakness in advertising revenue. Circulation revenue increased 5.1%, but this was due to price increases, as fewer copies were sold. But the focus here will be on advertising revenue.

The New York Times Company (NYSE:NYT) is capable of gains in digital subscriptions. Actually, revenue for digital-only subscription packages, e-readers, and replica editions jumped 44.1% to $38.3 million. And digital subscriptions improved 40%. But the company needs advertising revenue in order to thrive.

Advertising revenue

In the second quarter, advertising revenue dropped 5.8%. More specifically, print advertising, which accounts for 75% of advertising revenue, fell 6.8%, mostly due to lower national and retail ad revenue. Digital advertising declined 2.7%, mostly due to declines in Real Estate and Help Wanted classified ads.

Two major headwinds exist:

1. Web-based display ads are no longer a highly effective option. Instead, companies are opting to buy large audiences via ad networks and exchanges. This industry-wide shift has led to pricing pressure for The New York Times Company (NYSE:NYT).

2. The uncertainty of the global economy has led to retailers cutting their spending in order to aid their margins and bottom lines. Retailers don’t want to take unnecessary risks if consumers aren’t going to react positively to ads.

If you’re wondering about an ad revenue breakdown (declines in parentheses):

  • National: (3.5%)
  • Retail: (12.9%)
  • Classified (8.6%)
  • Other: (5.1%)
  • Total: (5.8%)

Strategies and goals

Currently, The New York Times aims to de-leverage its balance sheet. This means that its dividend won’t be restored at any point in the near future. Some investors might like at this as a negative, but it actually demonstrates fiscal responsibility.

Looking ahead, The New York Times Company (NYSE:NYT) aims to roll out a digital subscription and paid products strategy in the fourth quarter. This strategy will focus on international expansion, video production and improved brand recognition to drive subscriber acquisitions. This initiative is likely to lead to a $20-$25 million decline in operating profit in the near term, while slightly aiding the top line. But these investments are expected to have full positive effects by late 2014.

The New York Times vs. peers

The short position in The New York Times is high at 15.30%, which is directly related to a declining industry. In most cases, industry trends are more powerful than how well a company is run. Regardless of the reason, below are the top and bottom-line numbers for The New York Times.

2008 2009 2010 2011 2012
Revenue (in millions) 2,949 2,440 2,393 2,323 1,990
Diluted EPS (0.40) 0.14 0.71 (0.27) 0.87

Finding a positive trend in the table chart above isn’t an easy task. The New York Times can cut costs in order to keep the bottom line somewhat stable, but that top line must see a turnaround for sustainable stock appreciation.

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