The venerable Gray Lady appears to have found the pop in her stride in the back half of 2018. Investors worried that fatigue may have set in on The New York Times(NYSE:NYT) digital subscriber growth received a pleasant surprise Thursday as the company followed through on its promise of high-teens expansion in third-quarter digital subscription revenue. Advertising and "other" revenue also contributed to a solid top-line result over the last three months:

The New York Times' earnings: The raw numbers

Metric Q3 2018 Q3 2017 Year-Over-Year Growth
Revenue $417.3 million $385.6 million 8.2%
Net income $25.0 million $32.3 million (22.6%)
Diluted EPS $0.15 $0.20 (25%)

Data source: The New York Times Company. EPS = earnings per share.

What happened with The New York Times this quarter?

  • The Times' digital-only subscription revenue improved by 18.1% over the prior-year quarter to $101.2 million. News product subscriptions rose 16.4% to $95.6 million, while "Other product subscriptions," primarily crosswords and cooking content subscriptions, jumped 56.2% to $5.6 million. 

  • Total subscription revenue, which includes print subscriptions, advanced by 4.5% to $257.8 million.

  • Digital subscribers increased by 203,000, or 24.4%, over the third quarter of 2017. The new additions consisted of 143,000 digital news subscribers, and 60,000 new crosswords and cooking content customers.  

  • Advertising revenue rose 7.1% to $121.7 million versus the third quarter of 2017. Digital advertising, which had slumped nearly 7% in the first half of 2018, rebounded nicely, climbing 17% year over year to $57.8 million. Print advertising slipped by a modest 0.7% to $63.9 million. 

  • The paper's "other" revenue category continued to outperform, jumping 49.3% to $37.9 million. Management attributed the healthy top line to commercial printing growth, higher leasing revenue from an additional 4.5 rented floors in the company's headquarters building versus the prior year, and affiliate revenue from Wirecutter, the paper's referral website.

  • Total operating costs crept up 8.4% to $380.7 million, the result of increased production, selling, and general and administrative costs during the quarter.

  • Due to the high-single-digit total revenue advance, the Times was able to offset its rising costs. Operating profit expanded 30.2% to $41.4 million, and operating margin improved by 1.8 percentage points against the comparable quarter, to nearly 10%.

  • It's worth noting that adjusted operating profit (which the Times calculates after removing the effects of depreciation and amortization, severance costs, pension plan withdrawal costs, and one-time items) was flat against the prior year at roughly $54 million.

  • Despite higher GAAP operating profit, the company posted year-over-year net income and earnings-per-share declines. This is primarily due to a $30.1 million gain in the third quarter of 2017 that the paper recorded upon the sale of certain paper mill assets, comparatively benefiting that quarter against the last three months.
Folded newspaper and reading glasses resting on a laptop.

Image source: Getty Images.

What management had to say

In The New York Times' earnings press release, CEO Mark Thompson commented on subscriber strength, the company's strategic shift toward subscriptions, and the quarter's advertising rebound: 

This was a strong third quarter for the Company. We added 203,000 total net new digital-only subscriptions in the quarter and grew total revenue by 8 percent against the same quarter in 2017. We also passed two significant milestones, and now have more than 3 million digital-only subscriptions and more than 4 million total subscriptions.

We're executing on our subscription-first strategy; this quarter, subscription revenues accounted for nearly two-thirds of the Company's revenues. We're investing aggressively in our journalism, product and marketing and are seeing tangible results in our digital growth.

...[A]s expected, we are seeing a much stronger second half of the year. We had an exceptional third quarter with digital advertising up 17 percent and growth of 7 percent in total advertising.

Looking forward

The final quarter of 2017 contained an extra week in comparison to the 13 weeks in the current fourth quarter of 2018. Bearing this in mind, the Times expects total fourth-quarter subscription revenue to dip into the low- to-mid-single digits against the prior year, with digital-only subscription revenue ticking up in the mid-single digits. Other revenues is again targeted for brisk growth, in the range of 40% year over year. Management anticipates that operating costs will rise in the mid-single digits due to further growth in its commercial printing operations, as well as higher marketing costs. In short, expectations for the fourth quarter conform to the model that has boosted net income by roughly 15% through the first three quarters of 2018.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.