The New York Times Company

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

The New York Times Company is a global media organization focused on creating and distributing high-quality news and information across digital and print platforms, and other related ventures.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

The New York Times Company is a media company, primarily known for its flagship newspaper, The New York Times. The company has strategically transitioned from a primarily print-based model to a digital-first business, with digital revenues now representing the majority of its income. It operates in two segments: The New York Times Group (NYTG), which encompasses the core news and information operations, and The Athletic, a digital sports media brand. The NYT’s revenue is diversified between subscriptions, digital advertising, and other sources like affiliate income and commercial printing.

  • Subscription Revenues: The most important source of revenue for the NYT, comprised of revenues from digital subscriptions to the core news product and the Athletic. The strategy has been to emphasize direct digital subscriptions over the print ones. In the past several years there has been solid growth in digital subscribers and prices. There are also other subscriptions for the company’s various different products (Games, Cooking, etc).
  • Advertising Revenues: Primarily made up of digital advertising revenue through web, mobile and app sales. The company’s advertising revenue has seen some turbulence over the last few years. Print advertising has declined over time due to a lack of audience and shift to digital formats. However, digital ad revenue has seen some growth. The total amount of revenue from advertising is still lower than subscriptions.
  • Other Revenues: Primarily related to commercial printing, brand licensing, content and other affiliate referral programs, among others. This segment’s performance is more stable than others, but of low importance to the company’s profitability.

The media industry, particularly the news media, is facing rapid changes. Here are some of the trends relevant for the NYT:

  • The Digital Shift: As news consumption shifts online, newspaper companies struggle to sustain their traditional print business model. Although many companies have tried a transition to digital media, results are varied, as many of them struggle to transition to the new medium fully. This is where NYT is the leader, with most other companies struggling to catch up with them in online subscription growth.
  • Emphasis on Subscription Revenue: As digital advertising has seen increased volatility and reduced growth, the companies are looking at driving subscription revenue. NYT has been extremely successful on this front, so this should not be a concern for the company. Other companies are struggling in the subscription front.
  • Intensifying Competition: In the digital realm, news companies face increasing competition from social media and new media sites. NYT’s moat is to be able to create journalism that the consumers are willing to pay for, instead of just relying on ad revenue alone, like most other competitors.
  • Importance of Personalization and Targeting: With the use of more and more data, companies have the ability to target readers and serve them customized and personalized news, a growing trend within the journalism sector. NYT is also very good at understanding what their customers want and are implementing it in their products.

What Makes the New York Times Different?

  • Brand Recognition and Trust: NYT is widely regarded for its quality and unbiased journalism, which makes it one of the most trusted media outlets in the world. The company’s brand carries huge weight, giving it pricing power and the ability to retain its subscriber base. The brand also allows it to gain new subscribers and attract more advertisers compared to other smaller publications that lack name recognition.
  • Focus on High-Quality Journalism: The company’s commitment to journalism has established a strong barrier to entry, as producing the quality journalism it’s known for is hard to replicate. Most competing news sites rely more heavily on ad revenue than on subscriber revenue, and thus don’t invest in the journalism as much as NYT does, giving it a moat compared to other media outlets.
  • Successful Transition to Digital Subscriptions: NYT has had great success in converting its print readers to online, and gaining new subscribers in the digital medium, making it a model for other news organizations. This shows it can create long-term value in the new world.
  • Diversified Revenue Streams: Unlike many other publications, the company has good revenue diversification. This includes digital and print subscriptions, digital advertising, and affiliate sales. This allows the company’s revenue to be resilient to shifts in a single source of income.

Financial Analysis

Analyzing NYT’s financials, we find some interesting things about it’s business:

  • Solid Subscription Revenue Growth: The subscription business is booming for the company, and it is clearly benefiting from that. Subscriptions make up almost two-thirds of the revenue, and subscription growth has been good recently.
  • Mixed Advertising Revenue Performance: Digital advertising revenue is growing, but is offset by the decline in print ad revenue. This might hurt the company’s growth, but it shows it is good at adjusting to the changes in the environment.
  • Rising Operating Expenses: The company has faced rising expenses recently, which puts pressure on the company’s operating margins and profitability.
  • Adequate Liquidity: They have a good liquidity position, and a very low debt burden, allowing the company to stay afloat and deal with any challenges effectively.

Moat Assessment

The New York Times Company has a narrow moat, rated a 3/5, based on the following aspects:

  • Brand Recognition and Trust (Wide Moat): The brand’s reputation for high-quality journalism and credible reporting acts as a significant intangible asset. This makes their news hard to replace.
  • Switching Costs (Narrow Moat): NYT has developed a devoted base of subscribers who may find it tough to switch. They are not that high because the other media sites still offer their content for free. However, there are still many loyal subscribers.
  • Challenges for Long Term Sustainability: With the rise of competing and new media sites, the sustainability of the company has faced some challenges. This implies that the moat is narrow, instead of a wide one.

Risks to the Moat and Business Resilience

  • Technological Disruption: Rapid changes in digital media consumption or new platforms could threaten the company’s core business model. They have shown they are adaptable over time, so they have had some experience at handling such changes. They still need to innovate, to adapt with changing customer behaviour.
  • Competition from Online Content: The increasing number of free, online news sources, and growing competition from new media platforms threatens its dominance in the industry.
  • Dependence on Key Personnel: Much of the brand’s value has been developed by the executive leadership and individual writers, which implies that the brand and their profitability could be dependent on them. This is hard to replace.
  • Economic Downturns: The media industry has some sensitivity to economic cycles, and a decline in subscriptions and advertising due to a recession could heavily affect the financials. This has been an issue in the last few years.
  • Content-Specific Problems: Problems from content, for example, fake news or misinformation, can greatly harm a news organization such as NYT.
  • Rising Costs: Rising labor costs and production costs may erode the profitability over time.
  • Reliance on Subscriptions: The business model is heavily reliant on paid subscriptions, as advertising has decreased significantly. It means the business model can fail if their subscriber count declines significantly.
  • Dependence on Digital Growth: The overall business strategy heavily relies on digital growth, as the print revenue is expected to keep declining. If they don’t maintain their digital strategy, it can hurt the company.

Understandability Rating: 3 / 5

The New York Times Company’s business model is relatively easy to grasp. There are different divisions, but primarily their revenue is from news subscriptions and digital advertising. Understanding the core business isn’t hard, but analyzing the intricacies of the industry and how the company is maintaining its position may be complex, as it has so many different factors going into it. Therefore, a 3/5 rating was given for understandability.

Balance Sheet Health: 4 / 5

The company has a healthy balance sheet overall. Their liquidity is great, and they don’t carry much debt. The one point of concern is their pension liabilities that are somewhat high.

  • Strong Liquidity: NYT has substantial cash and short-term investments, exceeding current liabilities, which means a healthy liquidity position.
  • Limited Debt Burden: Although they have $526.8 million in debt, the company has the capability to pay back, especially as the business grows.
  • Good Equity Balance: NYT has positive retained earnings, and a stable equity position.
  • Pension Liabilities: They have large pension and other retirement liabilities of roughly $1.4 billion which can affect their balance sheets in the future, but nothing else too troublesome.

Recent Concerns

  • Revenue Guidance Cut: NYT recently trimmed their revenue projections for 2023, which resulted in the stock price plummeting. This is due to a challenging advertising environment, and a weak media industry in general.
  • CEO Compensation Controversy: NYT’s CEO has been subject to criticism over his compensation. A large percentage of compensation comes from stock options, which creates incentives to perform short-term stock price boosts and may not be in the interest of shareholders.
  • Union Contract Negotiations: The company is currently involved with long contract negotiations with some employees, which may mean added friction with the employees and the business itself, that may impact company culture.
  • Slowdown in subscriber growth: There was a lower growth of subscribers in the most recent quarter, creating worries that they will not be able to achieve the projected subscriber goals.
  • High Investments: NYT is consistently investing a lot in their digital product, which may hurt profitability. It needs to be seen if this pays off in the long-term.