The shares of The New York Times Company (NYT”>NYT) dropped 46 cents or 6.9% to close at $6.18 on Wednesday after the diversified media conglomerate professed about further deepening of the slump in advertising revenue, thereby raising alarms about rough weather in the economy, and its susceptibility to such conditions.
The company’s advertising volume for all its print publications and online came under pressure as advertisers shied away from making any upfront commitments, in an environment where fears about another possible recession is gaining ground.
The New York Times Company hinted that its advertising revenue for the third quarter of 2011 would now drop by 8%, citing weak advertising spots in real-estate, help-wanted and national automotive at the company's flagship paper, Reuters reported. Earlier, the company had predicted that advertising revenue trends in the third quarter will be similar to the second quarter, when it slid by 4%.
The publisher of The New York Times, the International Herald Tribune and The Boston Globe, commented that print advertising is expected to decline by 10%, whereas digital advertising revenue to the surprise would drop between 2% and 3% during the third quarter.
The company’s current outlook portrays an aggravated situation compared with the second quarter of 2011, when the company had witnessed a drop of 6.4% in print advertising, and registered a growth of 2.6% in digital advertising revenue for New York Times’ Digital business, which includes NYTimes.com, About.com, Boston.com.
The New York Times Company now projects a 4% jump in circulation revenue during the third quarter, which dovetails with the company’s low single-digit growth forecast provided previously at its second quarter earnings call.
Despite hiccups in the economy, what still promises a guaranteed revenue generation avenue is The New York Times Company’s pricing system for NYTimes.com, which was launched on March 28, 2011. The company notified that the number of paid digital subscribers reached 224,000 at the end of the second quarter.
The publishing industry has long been grappling with sinking advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content. Another media conglomerate, News Corporation (NWSA”>NWSA) has also taken a leap towards an online subscription-based model for general news content.
The New York Times Company remains committed to streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. Currently, we have a long-term ‘Neutral’ rating on The New York Times Company. However, counting on the current pulse of the economy and waning advertising revenue, we prefer to have a short-term ‘Sell’ recommendation on the stock, which is well defined by the Zacks #4 Rank.
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