STOCK BRIEF | New York Times (NYT) 3Q23 Earnings Results

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Advertising:

• Digital advertising was 75M in Q3, accelerating to 6.7% YoY growth from 6.5% in Q2 and -8.6% in Q1. We were at 8% heading into the print.

• Digital advertising at the New York Times Group was 66.6M, or down 2% YoY. This was a deceleration from 2.4% YoY growth in Q2 and a point of concern from a business standpoint. On the call, management pointed to headwinds in their podcast advertising division as the main culprit of the weakness. The YoY decline at the NYTG (which is one of two business segments, the other being The Athletic) was more than made up for by strength at The Athletic. Athletic digital advertising was 8.44M, an acceleration to 262% YoY growth from 114% growth. Continued growth of the advertising unit at the Athletic is one of the key drivers of that business unit scaling.

• While we flagged in our pre-earnings note that we didn't see any material impact from geopolitical events yet, it sounds like the Times is bracing for increased uncertainty in the ad market as we move through Q4. The guide for digital advertising was positive, with the adjusted fiscal calendar results (6 extra days in Q4 last year causing issues in the comparisons) expected to be between LSD to MSD growth.

• Advertising as a whole surprised, accelerating from 0.3% YoY growth to 6% YoY, or 117M. We were at 2% heading into the print.

• The outperformance for advertising as a unit came from print advertising. Print advertising grew 4.8% YoY against expectations for a YoY decline, consistent with the previous two quarters where print was down 8.7% and 8.6%.

• On the call, CEO Meredith Kopit Levien said print advertising is a notoriously hard number to forecast, but overall the company expects a continued decline each quarter as print news in aggregate faces secular headwinds.

Subscription:

• Digital subscription revenue was 282M, growing 15.7% and accelerating from 13% YoY in Q2. This number meaningfully beat consensus estimates of 271M and was slightly ahead of our number at 280M. Growth was at the top end of the 14-17% guide we got at the Q2 print, and digital subscription is expected to grow at a similar rate in Q4 with guidance being 13-16% YoY on an adjusted basis.

• At the NYTG, digital subscription revenue of 256.6M grew 15.2% YoY, accelerating from 10.6% YoY in Q2 and 8.8% YoY in Q1. Strength was attributed to a historically high number of promotional bundle subscribers being priced up to the full price plan in the quarter, something we flagged in our pre-earnings note. Additionally, the Times said pricing action they took with tenured single-product subscribers contributed.

• Digital subscription revenue at The Athletic slowed from 44% YoY growth to 21% YoY growth, but contributed 25.6M in revenue to the total number. So while we saw the Athletic accelerate it's advertising growth massively in the quarter, we saw a slowdown in subscription growth to counterbalance that.

• Digital ARPU grew 4.6% to 9.28 this quarter, accelerating from 3.6% growth in Q2 and mainly driven by strength in the bundle and multiproduct segment. Bundle and Multiproduct ARPU came in stronger than our estimate of 12.70 at 12.81, which represented a modest QoQ improvement. This segment will be the main growth driver for the Times as a business into the future, and while YoY declines in ARPU here are expected as subscribers come in on the promotional price for a year, we expect ARPU to eventually stabilize and return to growth over the next 18-24 months as additional cohorts are priced up. If success in pricing customers up to the full price continues as it did this quarter, we could see stabilization and growth even earlier than that, which would be a significant contributor to the top line. However, visibility into these trends is very limited.

Notes from the call:

• Transition of promo subscribers to full price was greater this quarter than in previous quarters (historical rate is ~50% after 1 year)

• Outperformance in advertising driven by better-than-expected print results

• Softer podcast advertising results created headwinds for digital advertising

• Wirecutter referral and licensing revenues continue to be a strong contributor

• S&M expense was down 3% as they continue to improve organic acquisition capabilities and improve the efficiency of their marketing programs

• G&A expense grew due to compensation and severance, but they don't expect this to be representative of future G&A trends

• The Times will no longer provide total operating cost guidance due to the inclusion of one-time special items going forward; will continue to guide adjusted operating costs

• Pressure from news aggregators limiting traffic to media outlets has been ongoing for 4-5 quarters now and we should start seeing effects of lapping that

• Increase in costs at The Athletic due to Times allocating more subscription revenue there as it is part of the bundle; more costs are allocated as well