President Donald Trump's election in 2016 sent shockwaves through the country, and the effect in the stock market was no different.
Stock futures plunged overnight as the upset stunned the investor class and many feared an inexperienced and erratic hand in the White House. However, by the next afternoon, stocks were already higher, as a victory speech from Trump helped cool nerves, and investors began bidding shares higher on hopes that Republican control of government would lead to tax cuts and investment in areas like infrastructure.
One of the winners in the immediate aftermath of Trump's victory was The New York Times (NYSE:NYT), which gained 11% in the first four sessions following the election, and continued to march higher over the subsequent weeks. The logic was simple. The shock of Trump's victory sparked a renewed interest in news, and revealed that many Americans, especially in the chattering classes, were unaware of underlying trends that had led to his victory, not to mention that Trump himself has long been a magnet for media attention. It makes sense, then, that the newspaper of record has seen a boom during the Trump years.
Since the 2016 election, its stock has jumped more than 250%, crushing the S&P 500.
By contrast, the years prior to Trump's election had been middling for the newspaper stock.
Indeed, Trump did help spark a rally in New York Times' shares, but there's more to the story than that.
Just the facts, please
In the seven-day period following Election Day, the Times added 41,000 subscribers, a one-week record for the company at the time, and its website set new traffic records in the three-day period surrounding the election. The company finished that quarter with 276,000 new digital news subscribers, a record since it launched its digital model in 2011, bringing digital news subscribers to 1.6 million as digital news subscription revenue rose 21% in the quarter.
In its first full quarter following Trump's election, the first quarter of 2017, the Times again set a record of 308,000 new digital subscribers. Subscriber growth moderated from there, but the company still finished the year with 2.23 million digital news subscribers, up 38% from the previous year.
A number of investors suspected that the stock's rally and the jump in digital subscribers would fade as it lapped the surge in 2017, but digital news subscription growth remained strong into 2018, growing 21.6% to 2.7 million. In 2019, growth in the key category accelerated to 26.4%, and the coronavirus pandemic prompted a 46.9% jump in digital news subscriptions through the first half of 2020 to 4.39 million, as the unprecedented situation sparked a need for information.
While Trump's election may have led to a demand surge at The New York Times, the trend has persisted for several years since, showing the company can deliver growth without the assistance.
More than a Trump bump
While demand for news may have risen during the Trump era, the headwinds against the newspaper industry haven't abated over the last four years as dozens of newspapers have folded or shrunk during the Trump administration. News consumption has increasingly gone digital, eliminating a once highly profitable print advertising business.
The Times has been dealing with this shift, but has managed it effectively, building its digital business since 2011, which also includes subscriptions to its Crossword and Cooking sections, as well as audio products. The company has even moved into video with its production of The Weekly in partnership with FX and Hulu, extending its brand.
Notably, the overall business has been slow to improve as the company is still dealing with the decline in the print business. Total circulation revenue has risen by 23% from 2016 to 2019 to $1.08 billion as gains in digital have been offset by its cannibalization of the print side. Meanwhile, advertising revenue has shrunk during that time, meaning overall revenue has only grown modestly.
Operating profit has been erratic, but has generally trended upward as the company gains scale with the growth in digital subscriptions. Digital revenue exceeded print revenue for the first time ever in the second quarter, a sign that profitability should continue to expand as more of the business shifts to the digital side.
What the future holds
Regardless of who wins the election, The New York Times should continue to prosper. Its brand strength separates it from the rest of the newspaper industry, and will continue to make it a draw for both talent and subscribers as it remains the standard-bearer in journalism.
Meanwhile, even if Trump loses, there won't be any deficit of news interest for the foreseeable future as the coronavirus pandemic continues to rage and a transition to a Biden administration will mark a sea change in Washington, generating plenty of news on its own.
At scale, the digital subscription model should be highly profitable for this media stock as nearly all of the incremental revenue from subscriptions flows to the bottom line. The company has set a goal of reaching 10 million total subscriptions, up from 6.5 million currently. As it progresses toward that target, the stock should be able to outperform no matter who's in the White House.