Value Act Capital Management has taken a new position with New York Times Co. The activist investor says the iconic newspaper can roll out its subscriber-only bundle aggressively and improve its digital revenue and margins.
In a letter to its investors, the San Francisco-based Value Act Management informed that it holds a 7% stake in New York Times. It believes that the newspaper’s current valuations do not reflect the long-term prospects in any economic environment. Times Management has many opportunities to offset the headwinds facing the industry.
The key to growth will depend on how aggressively the company rolls out its subscribers-only bundle. The product bundle includes games, news, cooking, crosswords, and the Athletic.
The Times share has fallen 32% this year before it rose 12% intraday high and settled 11 % higher at $35.10 in New York Thursday. The market capitalization of the shares increased to $5.8 billion.
Revenue Growth
ValueAct believes that in the long run, the newspaper has the potential to achieve double-digit revenue growth in the digital segment and around three times in margins.
The spokesperson of ValueAct Management declined to comment. A spokesperson for Times said in an email that they were aware of the investment made by ValueAct, and it added that the company regularly shares strategy with the shareholders. The Times management team had conversations with ValueAct before and exchanged views. The management and Board of New York Times will make decisions in the company’s and its shareholders’ best interest.
The New York Times has successfully built its digital- subscription model. It is one of those rare success stories in publishing that is large and growing. Times has 9.2 million subscribers, targeting 15 million subscribers by 2027. Its advertising business is, however, slipping as the weak economy has forced marketers to pull back ad spending.
Times reported a decline of 2 % in the digital advertising revenue in the second quarter early this month. It expects the third quarter to be flat or down to single digits in total advertising sales.
The New York Times is owned by the Sulzberger family, with a majority in B class shares of the company, and this enables them to have 70% voting rights in the company.
Generational shift
Times have a competitive edge according to research by ValueAct. The customers for bundle subscriptions have a lifetime value of 2.5 times compared to the new only digital subscriber.
ValueAct, in a letter, said there is a generational shift where the consumer prefers high-quality digital news. They could be anywhere – across websites, mobile apps, social media channels, podcasts, push alerts, and email newsletters. These can only be managed by a full-scale trusted brand such as the New York times.
Founded in 2000, ValueAct Management has pushed for changes in many prominent corporates, including Citigroup Inc., Nintendo Co., and Seven % holdings Co.
