Social Media Shifts And Generative AI Will Undermine Subscription Growth

Key Takeaways

• Escalating competition from social media, AI aggregators, and alternative news platforms is undermining subscription growth and digital advertising prospects.
  
• Market saturation and shifting public attitudes are making it harder to convert new subscribers and retain revenue growth across core segments.
  
• Expanding digital subscriptions, innovative partnerships, disciplined spending, and a focus on direct user relationships drive resilient growth, diversified revenue, and improved profitability.

Catalysts

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

• The ongoing shift of consumer attention toward social media, short-form content, and AI-driven news aggregators is intensifying, leading to a reduction in direct traffic to The New York Times' platforms and jeopardizing future subscription growth, which threatens long-term revenue expansion.
  
• Rapid advancement of generative AI is likely to further commoditize journalistic content, making The New York Times' original reporting less differentiated and eroding its ability to maintain pricing power or monetize premium subscriptions, putting average revenue per user and net margins at risk.
  
• The company's increasing dependence on converting large pools of registered users into paid subscribers points to market saturation in English-speaking regions, raising the likelihood that incremental subscriber growth will slow, limiting top-line revenue and undermining the target of 15 million subscribers by 2027.
  
• Persistent negative sentiment toward traditional media and mainstream news among significant demographics is expected to foster greater polarization, restricting The New York Times' ability to attract and retain a broad, engaged, and paying audience, which will impact long-term growth in both subscriptions and advertising revenue.
  
• Intensified competition from creator-driven and alternative news platforms, along with declining digital advertising yields amid regulatory changes and tech giants' dominance, will likely compress digital advertising growth rates for The New York Times and challenge its ability to maintain or expand net margins over time.

New York Times Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on New York Times compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming New York Times's revenue will grow by 6.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 12.0% today to 15.4% in 3 years time.
• The bearish analysts expect earnings to reach $494.3 million (and earnings per share of $3.11) by about August 2028, up from $320.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, down from 29.2x today. This future PE is lower than the current PE for the US Media industry at 20.7x.
• Analysts expect the number of shares outstanding to decline by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

New York Times Future Earnings Per Share Growth

Risks

• The New York Times continues to grow its digital subscriber base, with strong engagement and a successful strategy to convert users to its bundled offerings, which increases customer lifetime value and supports recurring revenue, directly boosting subscription revenues and earnings stability.
  
• Strategic partnerships-such as the multiyear licensing deal with Amazon for generative AI applications-demonstrate NYT's ability to monetize its intellectual property in new ways, diversify revenue streams, and remain relevant as technology evolves, all of which support long-term revenue growth.
  
• Digital advertising showed robust growth, with nearly a 19% year-over-year increase, supported by new ad products, first-party data, and expanding demand in key categories like sports and games, which helps offset industry-wide advertising headwinds and can improve net margins.
  
• The company maintains strong cost discipline while investing in product and content innovation, such as its expansion in video, audio, and lifestyle verticals, enabling continued margin improvement and free cash flow generation, which underpins healthy profitability.
  
• NYT's direct relationship strategy-leveraging a large, engaged registered user base and apps in multiple verticals-reduces dependence on third-party platforms for traffic, enhancing customer loyalty and making revenue and profit streams more resilient over time.

Valuation

• The assumed bearish price target for New York Times is $38.01, which represents two standard deviations below the consensus price target of $58.12. This valuation is based on what can be assumed as the expectations of New York Times's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $36.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $494.3 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $57.49, the bearish analyst price target of $38.01 is 51.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.