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Digital Revenue and Cost Control Boost The New York Times' Third-Quarter Profit

In The New York Times Company's (NYSE: NYT) third quarter of 2017, surging digital subscriptions and healthy digital advertising revenue continued to lift the newspaper's top and bottom lines. Yet a tight grip on costs also helped deliver sharply higher profits during the quarter:

The New York Times earnings: The raw numbers

Metric Q3 2017 Q3 2016 Year-Over-Year Growth
Revenue $385.6 million $363.5 million 6.1%
Net income $32.3 million $0.46 million N/A*
Diluted earnings per share $0.21 $0.00 N/A

Data source: The New York Times Company. *Difference too great for meaningful year-over-year comparison.  

What happened with The New York Times this quarter?

  • Total subscription revenue improved to $246.6 million, a 13.6% increase, which was paced by a 46.3% rise in digital-only subscription revenue, to $85.7 million.

  • The company added 154,000 paid digital-only subscriptions from the second quarter for a year-over-year increase of 59.3%, and ended the quarter with a total of 2.48 million digital-only subscribers.

  • The digital subscription "adds" breakdown is as follows: 105,000 news subscriptions, 26,000 crossword subscriptions, and 23,000 subscriptions for The Times' new "Cooking" digital product.

  • Non-news digital subscriptions have nearly doubled in the first three quarters of 2017 versus the prior-year period, to $9.8 million. While this represents just 2.5% of the company's total top line, content services, like crosswords and cooking, are destined to become a much more integral part of The Times' earnings in years to come.

  • Total advertising revenue declined by 9%, to $113.6 million, due to a 21.7% drop in print advertising, to $64.4 million. This was partially offset by a gain of 11% in digital advertising, to $49.2 million.

  • "Other" revenue expanded 17.7%, to $25.4 million, which the company attributed to affiliate referral revenue generated by its product review site The Wirecutter, which it acquired in October 2016.

  • While the newspaper's tremendous gains in digital subscriptions have fueled investor enthusiasm over the "NYT" symbol in 2017, an unsung narrative around the company is surely its tight control over expenses. In the third quarter, The Times decreased production costs by 4.3%, to $150.0 million, and held selling, general, and administrative costs flat, at $184.5 million. The company saw decreased severance costs of roughly $11 million versus the prior-year period, but avoided the temptation to pour on new expenses and dilute the benefit.

  • This expense discipline allowed the company to carry its 6% revenue gain plus a slight bit more, straight to the bottom line. Operating income of $33.0 million was more than triple the comparable quarter's result of $9.0 million.

  • During the quarter, the company recorded a $30.1 million gain on the sale of a joint venture interest in assets of a paper mill. This figure isn't included in operating income, but recorded separately on the income statement.

  • The joint venture gain was partially offset by the company's $23.4 million provision for income taxes. In last year's comparable quarter, the newspaper's income tax expense was only $121,000, due to a net loss. One consequence of higher net income? Higher income tax expense.

Image: Getty Images.

What management had to say

In the company's earnings release, CEO Mark Thompson pointed to the company's strength in digital revenue, as well as the newer, fledgling initiatives that will complete The Times' transition from venerable print newspaper to a provider of investigative journalism that enjoys multiple content-revenue streams: 

We had a strong quarter once again, with solid growth in digital subscriptions, digital advertising and subscription revenue and overall profitability... Of note, our digital news product added 105,000 subscriptions and Cooking, which launched as a paid digital product early in the quarter, added 23,000 subscriptions."

Looking forward

While the newspaper doesn't provide a detailed earnings outlook for upcoming quarters, it does issue general guidance on a few key numbers. Looking ahead to the final quarter of the year, The Times expects subscription revenue to rise in the high teens, advertising revenue to decline in the high single digits, and operating costs to increase in the high single digits against the fourth quarter of 2016.

The company notes that the fourth quarter will contain an extra week this year versus the 13 weeks that comprised the fourth quarter of 2016. Given the general guidance parameters described above, The New York Times Company should be on its way to another credible quarter as it seeks to close out its most profitable year since 2012.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.