Shares of The New York Times (NYT 12.04%) dipped on its third-quarter earnings report, but the results were stronger than the sell-off indicates.
The company showed off strong growth in its digital channel; advertising recovered from the pandemic; and it's making investments to capture the opportunity in new media markets like video and podcasting.
In this episode of "Beat and Raise" recorded on Nov. 4, Fool contributors Jeremy Bowman and Jason Hall discuss the earnings report and the media company's strengths at a pivotal moment in the industry.
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Jeremy Bowman: New York Times, I think, we all know what this company does. We've all heard the New York Times. Before I go into the earnings, I think the important thing to understand here is that for the last several years, the company has been in the midst of a digital transformation, like lot of companies out there moving from a print media business to digital media business. I think it helps our investors to think of these as two separate businesses. They obviously gel together in some ways, but digital is cannibalizing from the traditional print business and the shift in advertising has been a big trend there as well.
Q3 performance, we got revenue up 19.3 percent to 509.1 million. To go back to pre-COVID times, that was up 18.8 percent. From the 2019 quarter, that was ahead of the consensus at 499.1 million. Adjusted EPS ticked up a penny to 23 cents which also beat estimates. Advertising pulled back during the pandemic a year ago, that's why revenue was flat last year. The company scaled back their own investments and ramped it back up this year. That explains why earnings per share is flat even though revenue was up pretty solidly.
Just to get some more details there. Subscription revenue on the digital side was up 28 percent, print sub-revenue was down one percent. You see the difference there that I'm talking about. Ad revenue on both sides was up. Both digital and print was up about 40 percent. That's pretty solid, rebounding from the pandemic.
Guidance here. The company doesn't give a hard number so you have to take what they give you. Total subscription revenue is expected to be up 12 percent for the fourth quarter. Digitals sub-revenue up 25 percent. Ad revenue is expected to be mid-teens. Again, we see the operating costs going up faster than the overall revenue. That was the reason why the stock fell 9.6 percent yesterday. This earnings report came up yesterday morning. But I think the company is investing. I like that they're spending money right now and they're investing in the business. They got a lot of growth opportunities. You see here the stock has done really well over the last five years. I think it's been one of those under-the-radar plays. They are building the sub-brands like Wirecutter which is product review site, New York Times Cooking. They got games like crossword. They are also investing in new media, podcasts, video, they got a partnership with Hulu called The Weekly, which is news docuseries. I think there's a lot of optionality here to go, especially when you think of connected TV. There's so much demand for content and the Times has a great brand. I think of it as the Harvard of journalism. Harvard's a top school. I would think it would take a lot for people to stop thinking of Harvard to be the top college or one of them. Just as I assume as far any journalist is going to want to work for the New York Times, that's one of the handful of papers. We call it the paper record, I think.
Jason Hall: Right.
Jeremy Bowman: It's got 100-something year old brand that is pretty outstanding there.
Jason Hall: Hey, Jeremy, well, I think the key here is this is still showing double-digit growth pretty much across its business. The spend, the increased operating expense, is the thing we want a powerful brand to be spending on. It's things that are going to leverage what's valuable about it to continue that rate of growth.
Jeremy Bowman: Yeah, absolutely. I think the company sees a lot of opportunities for growth and they're investing in it to keep penetrating those new markets.