The New York Times (NYSE:NYT) reported fourth-quarter 2018 earnings on Wednesday before equity markets opened. The journalism and content provider booked a year-over-year revenue increase of nearly 4%, thanks to a vigorous uptick in digital-only subscription revenue that outpaced management's previous guidance. Executives projected strength in digital business going forward, and also committed to reinforcing investments in the Times' journalistic quality and new content offerings.
Below, let's peruse headline numbers and walk through vital details of the last three months. Note that in the discussion that follows, all comparative numbers refer to the prior-year period (the fourth quarter of 2017).
The New York Times' earnings: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Growth|
|Revenue||$502.7 million||$484.1 million||3.8%|
|Net income (loss)||$55.2 million||($56.8 million)||N/A|
What happened with The New York Times this quarter?
- The Times' management had previously projected that digital-only subscription revenue would rise by the mid-single digits in the fourth quarter. Surpassing the company's own expectations, this revenue stream increased by 9.3%, to $105.3 million, and was comprised of a near-8% increase in news product subscription revenue, to $98.8 million, and a 41.3% leap in "other product subscriptions" (ie. crosswords and cooking content), to $6.5 million.
- The Times added 265,000 net new digital-only subscriptions. As CEO Mark Thompson observed, this represented the biggest quarterly digital customer haul since the months following the 2016 presidential election. Of this total, digital news products garnered 172,000 subscriptions, with the balance to the company's crosswords and cooking content offerings.
- Digital additions offset weakness in print subscriptions and the effect of an extra week in the prior-year quarter, as total subscription revenue dipped 2.2%, to $263.6 million.
- Advertising revenue climbed a modest 5%, to $191.7 million. Digital advertising revenue jumped nearly 23%, to $103.4 million, while print advertising revenue slumped 10.2%, to $88.3 million. The digital advertising advance resulted from an increase in direct advertising sales on the company's digital platforms and higher creative-services revenue.
- Management pointed out that digital advertising revenue comprised 53.9% of total advertising sales during the quarter versus 46.1% in the fourth quarter of 2017 -- evidence of the extent to which print declines are being absorbed in digital's amplified results.
- The Times' third major source of income, "other" services, grew at a rate of nearly 48%, to $47.5 million. Management attributed the result to expanded commercial print operations, affiliate referral revenue from the company's product-review website Wirecutter, higher live-events revenue, and rental income from 5.5 floors of the newspaper's New York headquarters building.
- Operating costs, adjusted for comparability between periods, rose 8%, to 426.7 million, due primarily to higher raw material costs, labor, and marketing expense. Marketing expense rose nearly 50%, to $48.6 million. However, the company appears to be generating a decent return on marketing investments over the last several quarters in the form of new digital subscribers.
- While adjusted operating margin decreased by just over 3 percentage points, to 18.7%, net income and earnings per share far outstripped the losses in the fourth quarter of 2017. In the prior-year quarter, the company recorded significant one-time items, including a charge against post-retirement benefits and a charge to remeasure deferred tax benefits due to the year-end U.S. tax legislation.
- The Times increased its quarterly dividend by 25%, to $0.05 per share, which yields just under 1% annually at the current share price.
What management had to say
In today's earnings press release, CEO Mark Thompson told investors that the newspaper is single-mindedly cleaving to current company strategy of digital expansion, albeit with newly revised subscriber targets:
We ended 2018 with $709 million in total digital revenue. This means that after just three years, we are already three quarters of the way to achieving our five-year goal of doubling digital revenue to $800 million by 2020. As a result we are setting ourselves a new goal -- to grow our subscription business to more than 10 million subscriptions by 2025. Our appeal to subscribers -- and to the world's leading advertisers -- depends more than anything on the quality of our journalism. That is why we have increased, rather than cut back, our investment in our newsroom and opinion departments. We want to accelerate our digital growth further, so in 2019, we will direct fresh investment into journalism, product and marketing.
Management expects subscription-revenue momentum to continue into the first quarter of 2019. The company's outlook for next quarter calls for low- to mid-single-digit subscription revenue growth, propelled by a mid-teens increase in digital-only subscription revenue.
The advertising top line is expected to decline in the low- to mid-single digits next quarter, as print advertising will remain weak, although digital advertising revenue should climb in the mid-teens range. Other revenue is slated to expand by 50% during the first quarter.
Management projects that adjusted operating costs will rise by 10% in the first quarter due to investments in commercial print operations and "continued investment into the drivers of digital subscription growth: marketing, product, and journalism." In other words, as CEO Thompson explained above, management intends to keep pouring resources into product enhancements that have so far resulted in sustained growth in the company's digital user base.