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The New York Times (NYSE:NYT) saw a sharp drop in third-quarter profits as its print advertising operations continued to suffer from falling demand. Yet the renowned newspaper was able to deliver accelerating revenue growth in its digital business.

The New York Times results: The raw numbers

 

Q3 2016

Q3 2015

Growth (YOY)

Revenue

$363.547 million

$367.404 million

(1%)

Net Income

$0.406 million

$9.415 million

(95.7%)

Earnings Per Share

$0.00

$0.06

N/A

Data source: The New York Times Q3 2016 earnings press release.

What happened with The New York Times this quarter?

Total revenue fell 1% year over year, to $363.5 million, as a 7.7% decline in advertising sales more than offset a 3% rise in circulation revenue and a 1% increase in other revenues.

Declining print advertising sales remained burdensome for The New York Times, as well as the newspaper industry, as a whole. The company's third-quarter print advertising revenue plunged 19%, to $80 million.

Digital advertising revenue, however, surged 21%, to $44 million, aided by the growth of The Times' mobile business. Notably, digital advertising accounted for 35.5% of the company's total advertising revenue in the third quarter, up from 27% in Q3 2015.

Additionally, circulation revenue rose as digital subscription sales and price increases for home delivery of The New York Times more than offset a decline in the number of print copies sold. The Times added 129,000 paid subscribers to its digital-only subscription products in the third quarter. Digital-only subscribers totaled 1,557,000 at the end of the period, a 30% increase from the year-ago quarter. That helped fuel a 16.4% year-over-year jump in circulation revenue from digital-only subscription products, to $58.6 million.

"This quarter proved yet again that The New York Times has a very compelling digital revenue story to tell," said CEO Mark Thompson in a press release. "We saw exceptional gains in our digital consumer business, with a net increase of 116,000 subscriptions to our news products, more than twice as many as the same quarter last year and far more than any quarter since the pay model launched in 2011."

The Times is increasing its investments to support the growth of these digital initiatives, while at the same time realigning its resources in regards to its dwindling print business. In turn, operating costs grew 3.2%, to $356.6 million, due, in part, to higher technology and severance costs, which were partially offset by lower print production and distribution costs.

All told, operating profit -- adjusted to exclude depreciation, amortization, severance and retirement costs, and other special items -- dropped 18%, to $39.2 million. And adjusted EPS from continuing operations fell to breakeven from $0.06 in the prior-year period. 

Looking forward

For the fourth quarter, The New York Times expects total circulation revenue to increase -- and total advertising revenue to decrease -- at rates similar to those of the third quarter. In addition, operating costs are projected to increase "in the mid- to high-single digits" on a year-over-year basis.

"We expect print advertising to remain challenged in the fourth quarter and while we will continue innovating and investing where we think it makes sense, we will remain focused on our cost structure and on rapidly growing our digital business," said Thompson.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends The New York Times. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.