The internet has been transformational in the way business is conducted around the world. No longer do we need to wait for the postal service, newspapers, or even television to bring us the latest information. Today we are able to get information at the same time that the old school news disseminators. This fact has truly hurt the traditional media sources. Unquestionably, the newspaper business has suffered the greatest from the changes brought about in today’s digital age.
As you can see from the above graphic, newspaper revenues peaked in 2000 at $65.8 billion. Over the last 15 years, revenues have plunged to below 1950 levels at $17.3 billion. In fact, revenues have dropped 50% in the last 5 years alone. This dramatic plunge is made all the more severe when you consider that the U.S. population was 50% less in the 1950’s as it now. Talk about a radical decline!
Mark J. Perry of the American Enterprise Institute’s Carpe Diem Blog eloquently stated, “The dramatic decline in newspaper ad revenues since 2000 has to be one of the most significant and profound Schumpeterian gales of creative destruction in the last decade, maybe in a generation.”
While newspapers, as a whole, have suffered irreparable economic damage, one major name is battling the trend. In fact, some pundits believe that this now $2 billion company can soon be worth $19 billion.
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Every investor knows the importance of buying stocks at a discount, holding then selling at a huge profit.
Right now this newspaper stock represents an incredible opportunity for savvy investors who can visualize the company bouncing back.
The company I am talking about is the New York Times (NYSE:NYT). Known affectionately as the Gray Lady, The New York Times has made giant strides for competing in the digital age.
Let’s take a closer look at the opportunity:
The company is widely known as the most respected newspaper on the planet. Founded in 1851, The New York Times Company is a global media organization focused on creating, collecting and distributing news and information. The Company includes newspapers, digital businesses and investments in paper mills. The Company’s businesses include The New York Times, International New York Times, NYTimes.com, International.nytimes.com (INYT.com) and related businesses such as The Times news services division, digital archive distribution, its conference business and other products and services under The Times brand. The New York Times is a daily (Monday to Saturday) and Sunday newspaper, and International New York Times is a daily newspaper. The Company’s products reach audience in print, online and through other digital media. The Company deliver content across a variety of digital platforms, including mobile, tablet and e-reader applications.
It is this digital revolution at The New York Times that will propel it into the future and supercharge the stock going forward!
Unlike many old school media companies, The New York Times has successfully utilized “pay wall” technology and grew their digital subscriber base. Most media companies that have tried the “pay wall” have lost so many subscribers that they quickly reverted to the old way. In case you don’t know the term, “pay wall” it is a feature that requires readers to subscribe or pay to read the rest of the article. A snippet and headline are provided at no charge on their digital site entice readers. Next, the reader is required to be a subscriber to read the meat of the article.
The effective use of “pay wall” technology has allowed The New York Times to grow their digital subscriber base to 910,000 subscribers. The revenue from these subscribers is $169 million over the last seven years.
The growth in digital is growing rapidly due to a switch to internet native formats that have made the content friendlier to the internet generation. In addition, the companies shift to a one to one ration between sales people and creative types has created unique, bespoke opportunities for advertisers. The evolution has ramped up total digital revenues to $351 million.
Content Is King
Most importantly, the digital revenue of $351 million is much greater than the approximate $200 million annual costs to operate The New York Times newsroom.
While some analysts believe that the company would be smart to downsize the newsroom to cut costs, this makes little sense. In today’s world, content is king and The New York Time’s newsroom is a content producing monster.
To be sure, The New York Times is way behind the internet giants when it comes to digital revenue.
The above graphic makes the digital revenue divide very apparent. Google boasts an incredible $277.00 of digital revenue per monthly unique visitor. The New York Times is way down the list at just $6.00 monthly per unique visitor. Clearly, this spells opportunity as the company further improves its digital presence and controls a massive content producing machine.
The Latest Numbers
The print version of the New York Times continues to suffer as subscribers move to the digital offerings. During the fourth quarter, the company posted slightly higher revenue up 0.2% but operating profit slipped to $62.4 million down from $68.9 million from same time last year. Severance and retirement costs are pointed at as the cause of the year over year profit decline.
The very bullish news is the fact that the company’s native ad solution called Paid Posts helped lift ad growth by 19% counteracting a 9.2% dip in print ad revenue. Overall advertising revenue was down just 2.1%.
CEO Mark Thompson calls this improvement in advertising revenue the most encouraging year over year trend since 2005.
Other bullish happenings include Mexican billionaire Carlos Slim exercised his warrants to buy nearly 16 million more shares of the New York Times.
This makes Slim the largest shareholder with 27.8 million shares worth 16.8% of the company. The reason this is very bullish is the company plans on using the $100 million plus proceeds from the warrant exercise to buy back shares. Share buy backs are inherently positive for the stock price.
Not to mention the rumors of Michael Bloomberg showing interest in purchasing the New York Times keeps the shares positively active in the bullish sense.
Shares have been in an erratic upward trend since bottoming in January 2009 at just below $4.00 per share. Price has since pushed to a high of $17.00 per share before settling back in the $14.00 per share area. Right now the 200 day SMA is downward trending while the 50 day SMA is upward trending indicating that a longer term uptrend may be starting.
The Key Takeaways
Buying stocks of companies that have been beat down is a time tested way to profit in the stock market. However, there needs to be bullish catalysts at play to help lift the shares. The New York Times fits this bill perfectly. In addition, the technical picture is indicating a bullish turn in the stock.
The newspaper sector has been knocked lower by the migration to digital sources. The New York Times, unlike its peers, has successfully morphed into a profitable digital organization. Despite being in its digital infancy compared to the giants in the space, The New York Times has a massive, world class content producing machine which should, over time, allow it to compete directly with the digital leaders. In addition, buy out rumors, share buy backs, and growing digital revenue make this stock an ideal candidate for your portfolio!