It's no secret that coverage of the Trump administration has been a boon to shareholders of The New York Times Company (NYSE:NYT).
On this episode of Industry Focus: Consumer Goods, our team looks at the company's recent success, analyzing both performance drivers and strengths that NYT can focus on as it continues the transition from celebrated print publication to digital content powerhouse.
A full transcript follows the video.
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This video was recorded on Oct. 24, 2017.
Vincent Shen: I wanted to focus a little bit on the New York Times. We don't talk about them enough on this show here. It's an interesting company that's put up really strong results in the past few quarters. Coincidentally enough, benefited a lot from a somewhat antagonistic relationship with President Trump. Exactly how well has this company been doing under this administration?
Asit Sharma: In the last quarter, digital-only subscription editions for The New York Times jumped 69% year over year. The Times now has over 2 million digital subscribers, and that's doubled in a short two-year period. So, the answer is, Vince, they're doing extremely well under the Trump administration. Investors, let's go back to high school. This term symbiosis, do you remember this, when two organisms have a mutually beneficial relationship? It's exactly what we see here. I like to think of this as a "frenemy" relationship. It's not a coincidence, The New York Times will report earnings next week on November 1, and that's just a few days shy of the one-year anniversary of President Trump's election, the stock is up almost 77% from the day of the election to today. President Trump likes to bash the failing New York Times, but under him, they've been more sailing than failing. President Trump is a native New Yorker, he reads the Times, and he grants exclusive interviews to the Times. There was one in July with New York Times reporter Peter Baker, Michael Schmidt, and of course, Maggie Haberman. The President sees the value of keeping The New York Times as a mouthpiece, as much as he loves to bash them. And you won't hear the editors or business managers of the Times complaining about the revenue that the company is getting from this relationship.
Shen: Yeah. If you look at this business and how they've had to adjust, obviously the print side of their business has definitely shrunk, and they're losing subscribers there, advertising money is flowing out of the print side. It makes sense that they've not only invested significantly in their digital platform but seen quite a bit of success from it. This near-term boost, I feel like, they can really do a lot to take advantage of the amount of increased subscribers and attention that they're getting now and in the past year as a result of some of these headlines.
But understanding and seeing the long-term outlook for its print business, and how that wasn't sustainable, I think they made the shift a little over five years ago. With over three million total subscribers now, the double-digit growth that you mentioned in the past year thanks to that digital side of the business, and that's with both their subscriptions and their advertising revenue. But I think about the print side, and despite the fact that's shrinking in terms of its contribution to The New York Times, the subscriptions fall off slightly with each passing years, advertisers leave even more quickly, but it reminds me a little bit of tobacco companies. Even though these tobacco companies are losing smokers each year in developed countries, they can raise prices enough to offset the loss, if not even grow revenue a little bit. The same thing seems to apply for their print subscribership. It shrinks a little bit each year, but they can raise those prices and keep it almost flat. At the same time, on the flip side with their digital subscribers, see that incredible growth.
There's a quote from management earlier this year during an earnings call, they said, "We believe that the fundamental story from 2015 onwards is a better understanding and better execution of the pay model and opportunity to accelerate. And I think, when I look at the next few years, we're certainly not saying that we expect the short-term effects of Donald Trump's election as president and the associated news cycle necessarily to last at its current rate forever." The idea behind this, and what I like about it is, if the next three years with this administration continue to provide a tailwind to the company due to greater demand for news coverage, in terms of this administration, despite the fact that this heightened level of interest won't last forever, management acknowledges that, the company has some time to essentially turn these new digital subscribers who are interested right now, because of Trump coverage, for example, they have the opportunity to turn them into loyal readers, either through the habit of reading The New York Times each day, or by increasing the amount of content they offer and increasing their value proposition.
They're releasing more video content, they're releasing podcasts, they're getting into product reviews, and expanding the amount of content they offer that way, potentially, again, winning over the subscribers that they're getting now in that way. All in that backdrop, too, they also can continue to improve and optimize their advertising business. So it's just interesting, and I think it'll be interesting to watch how this company takes advantage of this heightened level of interest they're enjoying right now. What else are you watching or looking forward to to see the company try to take advantage of in the coming years, and that you think potential investors need to know?
Sharma: One thing that I'm really watching in The New York Times is the way that they're taking hold of their brand. Much in the way we talked about Tiffany's a few weeks ago, it's a very well-respected brand. The Time's ability to parlay that into additional revenue is going to be crucial. They were doing this well before the election. This was one of my very first CAPS calls when I joined the Fool back in late 2012. Listeners, if you haven't played CAPS, you have to, it will teach you how to invest.
The strategy that they laid out really appealed to me five years ago. And as you said, the Trump administration has just given them a tailwind for initiatives they were already working on. So things like digital crosswords, the Times last quarter saw their digital crossword subscription increase 42%. Now, that's only $3.2 million, but that's 4% of total digital-only revenue in the last quarter. So these really small revenue streams that ride on The New York Times' brand, which it's focused on, as you mentioned, the content, the podcast, those are going to be extremely important over the years. It's an interplay of the very particular in these initiatives and this big picture of this respected name that's really pushing change so it doesn't become one of those has-been companies. There are a number of those tobacco companies that aren't around any longer, Vince, you'll note. A few innovative ones have survived. But keep your eye on that big picture for the Times. Right now, it still has a forward P/E of close to 28x. It's gotten a little pricey with the price run-up, but it's still a great long-term investment, in my opinion.
Shen: Yeah. Makes sense, given the almost 80% price appreciation the stock's seen, as you said, in approximately the last year.