In this Industry Focus segment, Vincent Shen and senior Motley Fool contributor Asit Sharma wrap up their discussion of news and content powerhouse The New York Times (NYSE:NYT) by analyzing the company's plan to win additional subscribers, and its tight control on costs -- both of which have contributed to its popularity with investors.
A full transcript follows the video.
This video was recorded on July 31, 2018.
Vincent Shen: My last couple of points, Thompson has also pointed to a goal of about 10 million total subscribers, though he didn't really lay out a specific timeline for reaching that milestone. That's triple the current number. The Times has 30-40 million people visiting its website each month. Management has looked at its total addressable market as being something in the hundreds of millions, when you include all English-speaking readers. That kind of subscriber growth does seem like a potentially achievable number, given the momentum that they've had recently, and the focus that management has on expanding into more of a platform kind of business, beyond just the print and online newspaper.
Again, this is another case -- we've talked about this a lot with brands in consumer retail, about how important it is to nurture that, and how that can really drive some of the important results and growth for the company. Any final thoughts from you, Asit, before we roll off?
Asit Sharma: I have two points. One is, undergirding all of the things you just talked about has to be a sound financial strategy. The Times is a weathered, sleeves rolled up, bare-knuckled company when it comes to looking at their income statement. Any company which runs a newspaper for decades, successfully, has its acumen.
What I like about The Times is, all the investments that you've just walked us through, they need to come from somewhere. I've noticed, as I've been following The Times over the last two years, that the company consistently controls its costs. Every quarter, you see operating margin improve just a bit. It improved by 130 basis points in the last reported quarter over the prior year to 8.2%, which is not a high operating margin, but for the newspaper business, it isn't bad.
I also have noticed that they've been whittling away at what used to be a pretty big debt burden quarter after quarter. When you're running at some $400 million of revenue in a quarter, just reducing debt from $7-8 million down to under $5 million, where it is today, that makes a difference in earnings per share. It's one of the reasons that this stock has climbed. It's not just this really great subscription growth that the company has enjoyed. It's also how they manage the profits that flow to the bottom line. I think that's one of the persuasive reasons to own this stock -- it's well-managed from an economic point of view.
My last point is, looking at this coming quarter, I do feel that the company has had a pretty good run. It's trading now at around 27X forward earnings, not seriously overpriced. But, given the climate that we have in the market today, especially after Facebook's earnings unsettled the market, and some of the tech companies disappointed, it may be a quarter where The Times has just enough of growth for it to sell off a bit. Now, listeners out there, that means you should go out and buy the stock, because I'm usually wrong about these predictions. [laughs] However, if I'm not wrong, I think, this isn't a signal that you should run away from this stock. I do believe in what Vince has laid out, that it has a platform which will grow with judicious management of these new content strategies.
All in all, they may have a little bit of a bump in the road ahead, is my guess, in this quarter. Maybe not. But, still a strong investment proposition. The company has this great brand, which, if they manage it well, will continue to provide value and increased earnings per share going forward for the next couple of years, at least.
Shen: Great. Thanks, Asit! I'm going to end with a quote from the CEO. It's from a conference in May. I think it's interesting. It touches on what's ultimately a tailwind for The Times and all of these different verticals that it's looking at. He says, "We're not satisfied with our current rate yet, given what we think is the size of the market, the competitive context, and the fact that the background, because of Netflix and the other streaming services, because of Spotify, is manifesting a growing awareness and willingness, not just in the U.S. but in other countries, to pay for high-quality content."
It's an interesting parallel to draw with streaming music, streaming video. Ultimately, people are showing that, even with multiple services -- I'm a subscriber, for example, to Spotify, Netflix, I have an Amazon Prime account, I have Hulu. When the content is there, I'm willing to pay for it. The New York Times seems to be benefiting from this same swoon of interest and growth of people who want high-quality news, high-quality journalism. I think that's something that's here to stay, and that really speaks to the longer-term prospects for the company.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Asit Sharma has no position in any of the stocks mentioned. Vincent Shen owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Facebook, and Netflix. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.