The New York Times: Buy, Sell or Pray?

Dating Mode


Case Study

Read the earnings release and translate what management is really saying. 1Q_2013_Earnings then view  NYT_VL.

Your assessment in a paragraph or two. This should take no more than fifteen minutes.  Would you buy, sell or pray?  What say you on the outlook for the “Grey Lady?”  Why?

Postscript: A reader submits an A+ response:

Nearly every metric that should be increasing has declined and vice versa.  Management is trying to put lipstick on a pig.  (CSInvesting: You have captured the jist!)

Print and digital advertising revenues decreased 13.3 percent and 4.0 percent, respectively, largely due to ongoing secular trends and an increasingly complex and fragmented digital advertising marketplace. In the first quarter of 2013, digital advertising revenues were $46.5 million compared with $48.5 million in the 2012 first quarter. Digital advertising revenues as a percentage of total Company advertising revenues were 24.3 percent in the first quarter of 2013 compared with 22.5 percent in the first quarter of 2012.

This paragraph really speaks to me.  Management admits that the business is fundamentally changing, and not necessarily for the better.  Ad rev was down even though it makes up a larger portion of overall revenue.  That says there are some fundamental issues with the industry.  NYT would have to go in the “too hard” pile, because based on this commentary, I don’t feel like I’d know where the business would be in 5 or ten years from now.  Also, ongoing pension funding cannot be a good thing.  I don’t think newspapers are going away, but they will become more of a novelty and read just because people “like the feel of holding a paper.”  I don’t like to read everything online, so I just print stuff out, but on occasion I like to pick up a paper copy of WSJ or Barron’s just for fun.  But that’s just me.  Also I felt like they were selling business lines and investments to stay afloat, i.e. sale of Fenway Sports units? (Clear the decks of the Titantic)

From Value Line:

  1. Sales per share: down every year since 2005.
  2. Cash flow per share: seems to have peaked in 2000 and been choppy with downward trajectory every year since.
  3. Dividend: eliminated in 2009 and no indication its coming back.
  4. Capital Spending per share: they did make significant progress in reducing spending by shifting to digital driven model around 08.
  5. Shares outstanding: share count higher now than it was in 2004. Margins: stayed the same even though cap ex decreased dramatically.

CSInvesting: I would mention the poor returns on capital for such a large and established business, sub 10% means that the market price should NOT be much above its asset value. Poor returns on assets means that growth won’t help increase value.

Business in secular decline, management has no clue to change that, but they will try obviously, poor returns on capital with increasing pressure on margins.

The person submitting the best reply gets to work here: 

7 responses to “The New York Times: Buy, Sell or Pray?

  1. SELL!!! Company looks like it is in bad shape. Sales are declining, Low ROCE, Net Profit Margin shrinking. Company is feeling the pressure of competition.

    There is accelerated depreciation of 6.7 Million. Is this depreciation taken to
    increase the EPS in 2013???

  2. Carlos Soriano

    My interpretation:
    NYT will focus on divestitures, rebranding and investments in its digital platform in the next quarters. Be careful with cash flows if $40mn Capex guidance is finally met. Current top line negative trend to continue in the short term with potential turnaround in the mid term in case circulation revenue growth continues (~+5%); additionally, press release indicates management’s ability to control costs in case revenues.
    All in all, the message that is being sent is positive. NYT has a strong brand to rely on in its efforts to adapt to the new media landscape, consistent earnings during the last 3 years, potential for long term recovery and acceptable leverage.

    Take care.

    • Dear Carlos:

      What does it mean to have a brand? Why doesn’t the brand show itself in high and consistent profitability like Coke? or Google?

      • Carlos Soriano

        Dear John,
        Thanks for your feedback. What I meant is that when transforming its business from a paper platform into a digital platform NYT will have it easier than let’s say a local or a regional publisher/newspaper. Let’s say that for some reason tomato juice becomes a fad and Cocacola discontinues producing Coke and starts producing tomato juice with the Coke logo. Wouldn’t Cocacola have an advantage over the competitors? I am trying to say the same here. People demand information now on a digital format and the NYT “brand” should be an advantage here. Please correct me if I am missing something. I agree however that the business will continue to fall in the near term and that if there is no margin of safety we should definitely not buy.

  3. Start with the bad: Advertising is getting hammered vs. last year. Cash flows are trending downward, ditto what Mayur said re: sales, ROE, etc.

    The good: circulations are increasing (maybe they get some more ad sales with more eyeballs viewing their product?), catalyst w/ selling the Boston Globe, coverage (The Boston Globe was universally lauded for it’s coverage of the marathon bombing)

    Overall: With a no-growth 15% discount rate with a margin of safety, I’m not the slightest bit interesting until the stock dips below $6. Sell.

  4. B+/A-. Yes, it is a sell (no margin of safety/overvalued, declining business). Newspapers make their money on ADS not subscriptions. The fact subs went up is just noise. Digital will only hurt margins.

    Now to get an A+ translate what management was REALLY saying. “We are a beached whale with no clue what to do. We are screwed.

    If you could eliminate companies like that from an index, you would be doing better.

  5. I would sell and/or pray. Revenues are decreasing from advertising/print faster than digital is growing. Cost savings can only go so far. Losses on joint ventures, debt load and interest, and just overall not interested in the business model.

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