Last Thursday, The New York Times (NYSE: NYT) reported that its subscriber-first strategy was successful during the third quarter of 2018. At the end of the third quarter, The New York Times had more than 3 million digital subscribers and 4 million total subscribers. This strategy helped the company bring in 203,000 total net new digital-only subscribers in the third quarter, and subscription revenue represented close to two-thirds of the company’s total revenue. Of the 203,000 new subscribers, 143,000 came from news and the balance came from NYT Cooking and Crossword.

In its earnings report, the company noted it had total revenue of $417.3 million, an 8.2 percent increase over Q3 2017 revenue of $385.6 million. Subscription revenue grew 4.5 percent, advertising revenue grew 7.1 percent and other revenue grew 49.3 percent. Revenue from The Times’ digital-only subscription products – new, NYT Cooking and Crossword – increased 18.1 percent to $101.2 million.

“This was a strong third quarter for the company,” said Mark Thompson, president and CEO for The New York Times Company, in a November 1 earnings release. “We’re executing on our subscription-first strategy; this quarter, subscription revenues accounted for nearly two-thirds of the Company’s revenues. We’re investing aggressively in our journalism, product and marketing and are seeing tangible results in our digital growth.”

Additional highlights from the third quarter of 2018 included:

• Operating costs for the third quarter were $380.8 million, compared to $351.3 million for the same period last year. The increase is primarily due to higher marketing costs, labor and raw material expenses from the printing operation, newsroom expenses and advertising-related expenses.
• Marketing expenses were $40.4 million, compared to $26.6 million, due to subscription acquisition and brand marketing expenses.
• Capital expenditures were $15 million in Q3 2018, compared to $39 million in Q3 2017. The expenses represent improvements to the company’s College Point printing and distribution facility and a redesign at the company’s headquarters building.
• Operating profit increase to $41.4 million, compared to $31.8 million in the same period last year.
• Adjusting operating profit was $5.7 million, essentially flat compared to adjusted operating profit of $54.0 million in the third quarter of 2017.
• The company reported net income of $25.0 million, compared to $36.0 million year-over-year.
• The company reported adjusted diluted earnings per share of $0.15 compared to $0.12 per share in Q3 2017.
• Digital advertising revenue was $57.8 million, compared to $49.2 million in Q3 2017, representing a 17.3 percent increase. This increase includes growth in creative services as well as traditional direct-sold advertising.
• Print advertising decreased 0.7 percent.
• Other revenues grew 49.3 percent, including growth in the company’s printing operations, rental income from its New York headquarters, and affiliate referral revenue from Wirecutter.
• As of September 30, 2018, the company had cash and marketable securities of $794.5 million.
• NYT Cooking has more than 120,000 subscribers.

The company provided the following guidance for the fourth quarter. (Note: In Q3 2018, the company has 13 weeks, compared to 14 weeks in Q3 2017.)

• A decrease in total subscription revenue in the low to mid-single digits
• An increase in digital-only subscription revenue in the high-single digits
• A decrease in total advertising revenue in the mid-single digits
• An increase in digital advertising revenue in the mid-single digits
• Other revenues are expected to grow about 40 percent.
• Operating costs will increase in the mid-single digits, due to higher marketing costs and growth in the company’s commercial printing business.

Thompson shared a bit of the company’s subscription-first strategy during the earnings call.

“You will continue to see us experimenting with introductory pricing, meter count and porosity, registration and log-in, and bundling through Q4 and into 2019,” Thompson said. “We’re pleased with our progress so far, but believe we have the scope to accelerate subscriber growth further. We are continuing to spend marketing dollars efficiently and are monitoring subscriber acquisition cost and lifetime value carefully, but we will not hesitate to invest heavily in future growth where it makes sense. Indeed, we have launched a brand marketing campaign – which includes TV spots – this week.”

In anticipation of the earnings report, The Times’ Class A stock inched up throughout last week, peaking at $28.23 on November 1 and dropping slightly to $27.83 as of 5:40 p.m. EDT on November 2. It is more than $10 per share since its November 6, 2017 value of $17.30 per share.

Insider Take: 

The New York Times is one of the few major news organizations that seems to have figured out how to succeed in spite of the continued decline of print advertising revenue. The company is seeing success with its digital advertising products, which are offsetting print advertising revenue losses. More importantly, The Times sees the incredible value of reliable recurring revenue in the form of subscription fees. They have been creative in partnering with other organizations (e.g., Scribd), offering bundled products and promotions, and upping their marketing game. None of these components alone would yield the results they are seeing, but together, they form a winning combination.