The New York Times basks in the glow of digital revenue
Another quarter, another wave of digital subscriptions for The New York Times Company (NYSE: NYT). The newspaper publisher's second-quarter 2017 earnings report revealed that it's still experiencing a surge of non-print subscriptions, as a multiyear bet on content geared toward mobile devices continues to pay off. Below, we'll hit the headline numbers, followed by a detailed look into the quarter's results.
The New York Times earnings: The raw numbers
|Metric||Q2 2017||Q2 2016||Year-Over-Year Growth|
|Revenue||$407.1 million||$372.6 million||9.3%|
|Net income||$15.6 million||($0.21) million||N/A|
|Diluted earnings per share||$0.09||($0.00)||N/A|
What happened with The New York Times this quarter?
Subscription revenue increased 13.9% to $250.0 million on the strength of a 46.4% leap in total digital-only subscriptions. Digital subscription revenue totaled $82.5 million during the quarter.
Paid digital-only subscriptions expanded sequentially from last quarter by 114,000, to a total of 2.33 million by quarter's end. The additions represented a 63.4% increase versus the second quarter of 2016, and were comprised of 93,000 digital news subscriptions, with the balance to the company's digital crossword product.
Digital subscriptions are still benefiting from high interest in the company's coverage of the Trump administration, as CEO Mark Thompson pointed out during the conference call with analysts.
Digital-only crossword subscriptions proved again to be a small but rapidly growing component of total revenue. Crossword subscriptions revenue rose nearly 42% to $3.2 million during the quarter.
- There appears to be long-term potential in international subscriptions. Non-U.S. subscriptions soared by 80% during the quarter, and now make up 14% of digital-only subscriptions.
Advertising revenue increased by 0.8%, which, as management relayed, marked its first positive advance since the fourth quarter of 2014. Print advertising's decline of 10.5% was offset by a 22.5% increase in digital advertising.
Weakness in print advertising was formerly a huge problem for the Times. But with each passing quarter, expansion in non-print services reduces print advertising's contribution to the company's top line. In the last three months, print advertising made up just 19% of revenue, and management reported that for the first time, digital subscription revenue surpassed that of print advertising.
"Other" revenue rose 12.8% to $24.8 million, buoyed by revenue from the October 2016 acquisitions of two product review sites: The Sweethome and The Wirecutter.
Operating costs rose 11% during the quarter to $377.4 million, due primarily to severance costs for terminated employees and increased compensation. Substantially higher net income versus the comparable quarter resulted from restructuring and pension charges taken in the second quarter of 2016. These special items produced a comparative current year benefit of $23.5 million.
What management had to say
The New York Times is seeking to strengthen its ability to generate investigative journalism at a faster pace, to capitalize on the demand for high-quality news delivered to mobile devices. In the earnings conference call, CEO Thompson touched on the newspaper's somewhat controversial decision to reduce newsroom editing staff, both as a cost-saving measure and to ultimately expand content while expediting it to consumers:
We continue to implement the strategy outlined in our path forward and our newsroom's 2020 report and are confident that we will achieve our stated target of a $100 million of annual digital revenue by 2020. Our newsroom is undergoing a process to streamline its editing function to match the speed and form of digital journalism, while freeing up resources to put more journalistic boots on the ground, to deliver more investigations and help us further develop our capabilities in visual journalism.
While it's logical to allocate more resources to a burgeoning revenue stream, the strategy outlined above isn't without risks. The Times' accurate, grammatically sound, and typically typo-free copy is part of its larger brand proposition. While the newspaper arguably has traditionally kept too many editing layers in its process, a noticeable deterioration in copy quality could lead to some subscriber dissatisfaction.
The company doesn't provide detailed revenue and earnings guidance, tending to focus on a few big-picture items. For the third quarter, it expects subscription revenue to increase at a similar rate as the second quarter, i.e., near the mid-teens, on the strength of an anticipated 40% growth in digital subscriptions.
Advertising revenue is expected to decline from the mid-to-high single digits, while "other" revenue is slated to build on its near-13% advance in the second quarter, with growth shifting to the high teens. Operating costs are expected to rise in the mid-single-digit range.
In sum, management anticipates that the third quarter, at least structurally, will look pretty similar to the second quarter -- an outcome that shareholders will happily subscribe to.
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