The sluggish advertising trend is weighing upon The New York Times Company (NYT). The diversified media conglomerate now expects third-quarter 2010 total revenues to decline by 2% to 3%, after registering a growth of 1.2% in the previous quarter, stemming from the uncertainty among advertisers influenced by the sluggish economic recovery.
The company is witnessing a fall in print advertising and circulation revenues, as well as slowing growth in digital advertising. The publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers now expect print advertising revenues to drop by 5% in third-quarter 2010 versus a decline of 6% in the previous quarter. Circulation revenues are expected to fall by 5% compared with a growth of 3.2% in second-quarter 2010.
The New York Times indicated a decelerating growth in digital advertising revenues to 14% in the quarter under review from a growth of 21% in second-quarter 2010.
We observe that the company faces a significant risk of high dependence on advertising revenues, which are driven by the health of the economy. To mitigate this, The New York Times is transmuting its business model by adding diverse revenue streams, which include a circulation pricing model and a pay-and-read model for NYTimes.com (in 2011).
The company is also adapting to the changing facet of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its fold.
The New York Times also remains committed to lowering its debt load through cash generated from operations and divestitures. It has entered into a series of transactions, as a result of which, the majority of the debt now matures in 2015 or later. Moreover, to improve its liquidity position the company has been spending capital prudently.
Given the pros and cons we prefer to be Neutral on the stock with a target price of $8.25. However, The New York Times Company holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation, to portray the company’s changing business model to make it less susceptible to the economic conditions.