Is a New York Times Co Earnings Beat Enough to Keep Carlos Slim Happy?

NYT stock - Is a New York Times Co Earnings Beat Enough to Keep Carlos Slim Happy?

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With the New York Times Co (NYSE:NYT) first quarter 2018 earnings beat on May 3, news of the estimate-busting top- and bottom-line results pushed NYT stock higher at the day’s market opening before fading as trading wore on.

The revenue and earnings estimates for the publisher of the nation’s “newspaper of record” were $408 million and 15 cents a share, respectively. It delivered top-line revenue of $413.9 million, 3.8% ahead of last year on adjusted earnings per share of 17 cents, a couple of pennies ahead of the analysts’ estimates.

“Retention of our core digital news product remains a very encouraging story,” CEO Mark Thompson told listeners on its conference call. “We continue to retain the post-election cohorts, some of whom are now well over a year into their subscriptions, at least as well as earlier cohorts.”

For those who aren’t keeping score, that’s a 7.5% increase in subscription revenue with 139,000 new subscribers. Total digital-only subscriptions have now reached 2,783,000; Subscriptions and single-copy sales now make up 63% of the company’s revenues, against 30% from advertising.

So much for President Trump’s claim that the newspaper is “failing.”

You would think Carlos Slim, Mexico’s wealthiest person and owners of 16.7% of NYT stock, would be generally happy with these results.

Perhaps, but let’s consider the situation in more detail, before giving the newspaper publisher a clean bill of health.

How’s Slim Doing on NYT Investment?

NYT stock is up 25% year to date through May 2, adding to a 40% gain in 2017. In fact, the shares haven’t lost money since 2014, which equates to 22% growth for each of the past five years.

Not bad for a newspaper company once thought to be on the way to the publishing graveyard.

Slim acquired 9.1 million shares of New York Times stock at approximately $13.96 a share in September 2008. Four months later, the Mexican billionaire lent the company $250 million, receiving notes paying 14.1% interest annually over six years with warrants attached to buy an additional 15.9 million shares at $6.36 a share anytime before Jan. 15, 2015.

Slim exercised those warrants in early 2015, long after the company repaid his loan, earning him $122 million in interest plus a premium of $12.5 million for early prepayment, a total of $134.5 million.

Can NYT stock growth keep a smile on Carlos Slim’s face?

Back that out and Slim paid $91.5 million for 25 million shares of NYT stock, an average price of $3.66. Slim likely purchased an additional 2.8 million New York Times shares on the open market between September 2008 and January 2015.      

Using an educated guess of $9 for each of the 2.8 million shares, Slim paid an average of $4.10 for the 27.8 million shares he held in January 2015. He’s since sold off around 700,000 shares as prices have risen. That’s a 457% return on his New York Times investment over 10 years for a compound annual growth rate of 18.7%.

What’s this got to do with earnings?

Nothing, but as long as Carlos Slim continues to hold a significant interest in the company, any negative news, such as this quarter’s lower digital advertising, is just noise.

Where to Now for NYT Stock

The company continues to grow digital subscriptions and that’s very important to its improving operating profitability.

No, if I were Carlos Slim, I’d be delighted with the Times’ performance in the first quarter. If you own NYT stock, you should be, too.     

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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