Last week we wrote an article on The New York Times Company (NYT) - Get New York Times Company (The) Report and highlighted a sanguine view of the company based on a 25% upside scenario driven by its online business, which we feel will benefit from the increasing use of mobile devices and influence of social media. Today we take a look at the difficulties facing its print advertising and circulation segments that represent about 28% and 32% of our Trefis $8.46 price estimate, respectively.
Falling print ad dollars and lower circulation creates a one, two punch that NYT will have to overcome.
Print Ad Business in Decline
We forecast that the US newspaper print advertising market for national scale publications like the
Wall Street Journal
, owned by
, will decline from around $4.4 billion in 2009 to around $3 billion by the end of the Trefis forecast. Due to these macro headwinds, NYT's stock could continue to struggle.
, newspaper print advertising sales declined in third-quarter 2010 from decreased advertising from health care, the live entertainment industry and cable companies when compared with third-quarter 2009. NYT's retail and classified ad business also declined due to a weakness in automotive, real estate and recruitment categories.
If this business declines at a faster pace to $3.5 billion during the forecast period, this takes just under 6% off of our price estimate.
NYT's daily and weekend circulation has declined at a rapid rate in the past and is expected to decline further. Growing preference for reading news online is enabling users to avoid newspaper subscriptions.
Online news not only provides a cheaper source for reading news, but also provides real time information, which print newspapers fail to provide. The declining circulation will mean that the print advertising rates will continue to decline, which will mean that the overall newspaper print advertising market will continue to suffer.
We estimate that NYT's daily circulation will continue to decline from around 980,000 in 2009 to around 685,000 by the end of Trefis forecast period. If this falls to 600,000, this chips about 3% off our price estimate.
You may modify our forecast for the above drivers to form your own estimates.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.