The New York Times Co.: Bull/Bear Discussion

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Highlights

On January 14, 2022, DeMatteo Research hosted a bull/bear discussion on The New York Times Co (NYT). The group shared a range of opinions on the outlook for subscriber growth, churn, disintermediation risk (e.g., Substack), margin expansion, advertising growth opportunities, capital return, and valuation. One of the bears is short NYT, believing that waning trust in the news will drive increased churn, whereas the other bearish participant and the bulls are comfortable with the outlook for subscribers over the short and medium term. The bulls largely view it as a high quality asset with meaningful growth runway despite varying levels of concerns around certain dynamics; one bull sees upside to a $60 – $65 stock price and another thinks NYT can CAGR earnings as high as 20%. In contrast, both bears question the TAM and margin expansion story, ultimately considering the current valuation (>30x consensus 2022 EPS) rich. Other topics discussed include the significance of the trust factor and NYT’s recent acquisition of The Athletic. 

Subscribers, Churn, & TAM

Despite negative headlines around news engagement, the bulls are confident in NYT’s growth opportunity. One bull began investing mid-2021 around the current share price when credit card data started to roll over and there was concern that NYT’s strength had been driven by Trump. Using multiple data providers, he analyzed the weaker reported net adds and found that it was mostly a function of increased churn following a period of elevated gross adds, which he considers a natural cadence. He views gross adds as a leading indicator and became comfortable that gross adds were tracking well, as they were below the abnormal 2020 but above 2019. The other bulls agree that the increased churn does not reflect declining interest in the product. As evidence, they point to strong retention among engaged readers, a healthy LTV/CAC, and their view that NYT is a niche, high quality news product that doesn’t compete with headlines and is better than a lot of the free content available online even though it has a real political slant. One bull also highlights the international opportunity and TAM, breaking down App Annie data to reach the conclusion that international subscriber growth has been strong without the company investing heavily in international marketing or having local presences. As the digital transformation continues, NYT’s top-of-the-funnel and retention should benefit from the non-traditional ways it now touches existing/potential subscribers (podcasts, newsletters, etc.) and the consolidation seen in other sectors’ digital transformations.