The New York Times (NYT +1.51%) relayed newsworthy results to investors on Wednesday before the markets opened, as first-quarter earnings met or exceeded management's guidance on multiple fronts. Below, we'll tackle the key story lines of the reporting period, and review management's outlook for the upcoming period. Note that in the discussion that follows, all comparative numbers refer to the prior-year quarter.
The New York Times' earnings: The raw numbers
| Metric | Q1 2019 | Q1 2018 | Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $439.1 million | $413.9 million | 6.1% |
| Net income | $30.2 million | $21.9 million | 37.9% |
| Diluted EPS | $0.18 | $0.13 | 38.5% |
Data source: The New York Times Company.
What happened with The New York Times Company this quarter?
Image source: Getty Images.
- Subscription revenue rose 3.9% to $270.8 million, meeting management's expectation of growth in the low to mid single digits. Advertising revenue slipped by 0.4% to $125.1 million, while "other" revenue jumped nearly 56% to $43.2 million. The company attributed this higher revenue to expanding commercial print operations, as well as increased revenue from space rental in its New York headquarters building.
- The Times hauled in 223,000 net new digital-only subscriptions. Of this total, the company tallied 144,000 subscriptions to its core news product, with the balance for content areas like the popular cooking and crosswords products.
- The rather flat result in advertising revenue exceeded management's guidance of a decline in the low to mid single digits. This was due to exceptionally strong digital advertising, which improved by nearly 19%, offsetting a drop of 12% in print advertising.
- Operating costs rose 7% to $404.5 million, coming in under management's projected 10% increase. Operating costs were influenced by higher marketing and labor expenses, as well as rising raw materials costs in both newsroom and commercial printing operations.
- The paper's operating margin dipped by roughly 35 basis points to 7.9%, as higher expenses absorbed the top-line advance.
- Net earnings nonetheless rose substantially, receiving a boost from two discrete items. Interest expense declined by 73% to $1.3 million due to decreased debt, and income tax expense dropped by 75% to $1.3 million from a tax benefit related to stock-based compensation awards.
- The company indicated its intent during the quarter to exercise an option to repurchase a condo interest in its headquarters building for $250 million. The option can be exercised in the fourth quarter, and will be funded using existing cash and marketable securities.
What management had to say
As digital subscription growth continues to offset declining print revenue, and digital advertising props up total advertising revenue, management appears to be justified in investments that have pushed up near-term operating costs to strengthen the company's long-term revenue model. In today's earnings release, CEO Mark Thompson highlighted the results of these investments, in addition to the company's success in vertical content markets, and continued digital advertising growth:
We had another strong quarter, and we're continuing to optimize our business to deliver on our goal of reaching 10 million total subscriptions by 2025. For the quarter, we added 223,000 net new digital-only subscriptions, of which 144,000 were to our core news product, for a total of 4.5 million subscriptions.
The breadth and depth of our news report have allowed us to spin out two highly successful digital products beyond core news, NYT Cooking and Crossword. This quarter, our Crossword product passed the 500,000 total subscription mark, which makes it, in its own right, the fifth largest digital subscription product from a U.S. news provider. And today, we launched our newest product, Parenting, in beta.
We saw very good year-over-year growth in digital advertising, while total advertising was flat. Subscription revenues made up two-thirds of the Company's revenues, and for the first time, digital-only subscription revenue was more than a quarter of total Company revenue. We will continue to invest in our journalism, product, and marketing at elevated levels to attract and retain large numbers of new subscribers to The Times.
Looking forward
As investors already begin to contemplate the next reporting period, management reminded shareholders today that the second quarter typically sees a seasonal low in new digital subscriptions. The company expects digital-only subscriptions to grow in the mid teens over the prior-year period in the second quarter. Total subscriptions are slated to expand in the low to mid single digits.
Management anticipates that digital revenue will grow in the mid teens, thus keeping total advertising revenue flat against the prior year. Revenue in the "other" category is expected to rise 35% year over year.
Finally, the company projects that operating costs will rise 8% to 10% against the second quarter of 2018, due to investments in marketing, digital subscription growth, journalism, and its commercial printing operations.
