Novice Investing - A Light Reading On New York Times

Date: Friday 29th 2008f August 2008 09:44:37 PM

A Light Reading On New York Times - 09/03/2006

By: Novice Investing Staff

Newspaper industry is characterize with slow growth but solid cash flow. It has been around for centuries and most are big established players owning several big-city newspapers in the United States. Today, we will look at New York Times Co. (NYT) 2005 annual report, the owner of New York Times Paper (of course) and several others. We can perhaps learn if there is any value to newspapers stock since it has been on a decline with the emergence of online advertising force led by Google Inc. (GOOG)

Most newspapers company is burdened with high goodwill cost, which we feel that a negative. However, local regional paper has a mild moat that prevents people in that area to switch papers, because there are no other papers around! In its 2005 annual report, New York Times Co. (NYT) divided its business into three groups; News Media Group, Broadcast Media Group and About.com. News Media Group is the largest division of New York Times since newspapers is what they do. As you can see later, the company is concentrated in the New York/ New England area where the company purposely divided its News Media Group division based on that.

Going inside the annual report a little further proves our point. The company has a combined 7740 employees for those two regions (New York and New England) or 65% of total employees. The New York Times Media Group meanwhile, produces $ 2.037 Billion in revenue (or 60.4% of total 2005 revenue). Furthermore, The New England Media Group grossed in a revenue of $ 675.3 Million (or 20% of total 2005 revenue)

New York Times owned several radio and TV stations which they lumped together into Broadcast Media group. This division produces less significant revenue of $ 139 Million ( 4% total revenue). Similarly, About.com, which was acquired for $ 410 Million back in 2005, produces a revenue of $ 43.9 Million (or less than 1.3% total revenue)

Thus, when you are talking about New York Times Co, you are basically talking about newspapers company concentrated on New York and New England area. While newspapers industry in general had declining circulation due to the popularity of online advertising, New York Times Co.

had online presence that is top among newspapers leading industry. Mainly, its Nytimes.com's traffic is ranked 82 by Alexa, which is number one among newspapers. The nation largest newspapers by circulation, USA Today, is ranked 368 for its online traffic. Therefore, New York Times seems to be morphing online quicker than other newspapers publishers. Other newspapers owned by New York Times had significant web presence too, including Boston.com, which is the website for its Boston Globe. Further, the acquisition of About.com proves management's vision of moving online. Slowly but surely, newspapers company are moving online. For example, Gannett Co, Inc. (GCI) which owned USAtoday, also co-owned Cars.com and CareerBuilder.com.

We have touched briefly about the high goodwill value on Newspapers balance sheet. For 2005, New York Times Co. (NYT) spot a $ 1.47 Billion of goodwill, which is huge considering that they merely depreciate $ 144 Million of its long term asset annually. Some of it goes towards depreciating long term asset (such as property, plant) while the rest will go towards amortizing its goodwill. Long term depreciable asset stands at $ 3.3 Billion on 2005.

On the P/E basis, NYT looks fairly valued with 15 times earnings. However, if they adjust their depreciation expense to reflect more with the general industry, their profit would be completely wiped out. Other newspapers company had been doing similar accounting for their depreciation amortization method, therefore, if you want to invest in newspapers company, you better be wary of this issue.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding New York Times Co. (NYT) or any other securities.

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