Digital Expansion And The Athletic Integration Will Support Future Shareholder Value

Key Takeaways

• Diversified portfolio and strategic pricing are driving significant growth in digital subscription revenue and improving ARPU.
  
• Expansion in digital advertising and integration of The Athletic are expected to boost revenue, margins, and shareholder value.
  
• Shifts from print to digital create revenue pressures, with rising costs and labor issues possibly impacting margins and earnings.

Catalysts

The New York Times Company, together with its subsidiaries, creates, collects, and distributes news and information worldwide.

• The focus on a diversified multiproduct portfolio and successful subscriber engagement strategies are driving significant growth in digital subscription revenue, impacting overall revenue positively.
  
• Increasing subscriber engagement and strategic price increases are leading to improved Average Revenue Per User (ARPU) and are expected to continue supporting revenue growth.
  
• The expansion in digital advertising, particularly through lifestyle products and content innovations, is anticipated to contribute to overall revenue and profitability.
  
• The integration and use of The Athletic as a component of bundled subscriptions are expected to increase subscriber value and contribute to net margins and earnings.
  
• Strong free cash flow generation and capital return to shareholders, including share repurchases and dividends, are likely to enhance earnings per share (EPS) and overall shareholder value.

New York Times Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New York Times's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 13.5% in 3 years time.
• Analysts expect earnings to reach $405.1 million (and earnings per share of $2.53) by about December 2027, up from $280.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2027 earnings, down from 32.0x today. This future PE is greater than the current PE for the US Media industry at 14.7x.
• Analysts expect the number of shares outstanding to decline by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

New York Times Future Earnings Per Share Growth

Risks

• Digital advertising growth could face challenges, as some advertisers continue to avoid controversial topics, potentially impacting future advertising revenue.
  
• Declines in print revenue are mentioned, indicating an ongoing shift away from traditional media, which may negatively affect overall revenue if not fully offset by digital growth.
  
• Audience headwinds driven by shifts in the platform landscape and reduced traffic from platforms could impact user engagement and digital subscription growth, affecting overall revenue.
  
• The recent rise in product development and sales and marketing costs suggests a focus on investment that might not yield immediate returns, which could pressure net margins.
  
• Potential impact from ongoing labor negotiations or strikes, as mentioned with the technology employees, could disrupt operations and increase costs, affecting earnings.

Valuation

• The analysts have a consensus price target of $58.0 for New York Times based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $66.0, and the most bearish reporting a price target of just $45.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.0 billion, earnings will come to $405.1 million, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 6.2%.
• Given the current share price of $54.57, the analyst's price target of $58.0 is 5.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.