Digital subscriptions are proving to be a successful source of revenue for The New York Times (NYSE: NYT), according to the company’s latest financial report. During the first quarter, The Times added 139,000 digital-only subscribers, a 25.5 percent increase from the same period last year. The total of new digital-only subscribers includes about 99,000 from the company’s news products with the remaining 40,000 subscribers from their Cooking and Crossword apps. The New York Times now has about 2,783,000 digital-only subscribers.

‘Retention of our core digital news product remains a very encouraging story,’ Mark Thompson, the company’s chief executive, said during an earnings call with investors. ‘We continue to retain the postelection cohorts, some of whom are now well over a year into their subscriptions at least, as well as earlier cohorts.’

Total revenue for the first quarter was $413.9 million, a 3.8 percent increase year-over-year. Subscription revenue was $260.6 million, a 7.5 percent increase year-over-year. Subscription revenue makes up about 62.8 percent of total revenue for the company.

During the quarter, digital advertising revenue decreased about 6 percent to $46.7 million. Thompson said the company anticipated a decline in digital ad revenue in the second quarter as well but he expected it to rebound in the third quarter. Print advertising revenue decreased 1.8 percent, and other revenue rose 5.0 percent due to affiliate referral revenue from Wirecutter and commercial printing revenue, offset by declines in revenue from The Times’ live event business.

‘The character of our advertising model, with its increasing reliance on strategic commercial partnerships and often large individual campaigns, means more lumpy results than was the case, say, three years ago, as individual partnerships and campaigns come on and off stream,’ Thompson said.

‘In a rapidly evolving digital ad marketplace, we believe that our differentiated offering, the safety of our environment and the growing desire of the world’s biggest brands to associate themselves with The Times position us for success,’ added Thompson.

Other highlights from the quarter include:

• Digital-only subscription revenue totaled $95.4 million, $90.6 million of which was generated by news products and $4.8 million of which was from other product subscription revenue.
• Total advertising revenue was $125.6 million ($109.5 million from display ads and $16.1 million from classified and other advertising).
• Total print advertising revenue for the quarter was $78.9 million ($70.8 million from display ads and $8.1 million from classified and other advertising). Total digital advertising was $46.7 million ($38.7 million from display ads and $8.0 million from classified and other advertising).
• Operating costs increased to $378.0 million, compared to $368.6 million during Q1 2017, due to higher compensation costs.
• Operating profit was $34.1 million, compared to $27.8 million for Q1 2017, driven by strong digital subscription revenue.
• The company had capital expenditures of $19 million during Q1 2018, compared to $6 million during Q1 2017, mostly due to improvements at the College Point printing and distribution facility and ongoing redesign and consolidation of space at headquarters.
• There was a $1.9 million charge for the redesign and consolidation of space in the company’s headquarters building.
• The company had severance costs of $2.4 million during Q1 2018, compared to $1.6 million during Q1 2017.
• Net income for the quarter was $21.9 million, or $0.13 diluted earnings per share.
• As of April 1, 2018, the company had cash and marketable securities of approximately $749.3 million.

In a news release, The Times offered the following guidance:

• Total subscription revenue will increase in the mid-single digits compared to Q2 2017.
• Total advertising revenue will decrease in the low teens compared to Q2 2017.
• Operating costs will increase in the low-single digits.
• The company anticipates capital expenditures between $60 million and $70 million.

The Times’ financial report had no significant impact on the company’s Class A stock. On May 3, the date financials were released, stock was valued at $23.00 per share. At 4:10 p.m. EDT on May 4, stock was valued at $22.80 per share. On May 8, 2017, stock was valued at $17.00 per share, so it has seen growth of about $6 a share in the last year.

Insider Take:

The Times has had success with its digital-only subscriptions, including its news products as well as its stand-alone Crossword and Cooking apps. It also seems to be getting some affiliate revenue from Wirecutter. While its digital advertising revenue has dropped, that was an anticipated drop with the Trump bump from early 2017 dropping off a bit. If the company can turn that decline around – as it anticipates in the third quarter – it could become a good source of revenue for The Times. One the company’s capital investments and headquarters’ remodel are complete, the company should see higher profits as well.