By: Jennifer Saba Bank of America analyst Joe Arns is warning ad revenue at The New York Times Co. could take a turn for the worse this year.
In a note to investors, Arns wrote that he believes a drop-off in movie and luxury advertising will affect the New York Times' results. These two categories helped bolster the company's Q3 numbers. In that quarter, revenue at the company grew 3% compared to an industry decline of 7%.
"Although [the New York Times'] recent success in growing its national ad revenue is a positive, we wonder if investors have been lulled into a false sense of security," Arns wrote. "In our view, the risk of a broader economic downturn suggests to us that [the New York Times'] estimates are most at risk relative to current consensus levels."
Luxury merchandise and box office sales slipped in Q4. The note cites Mastercard's SpendingPulse report, which shows a 2% decline of luxury goods sold during the holiday period. Box office receipts were down 4% in Q4.
Arns estimated that luxury goods and movie advertising together represent about 15% to 20% of the New York Times' newspaper ad revenue. (The projection does not include luxury advertising from the style magazine T.)
Bank of America's 2008 revenue estimate for the company is $407 million EBITDA or about 18% below consensus. The research firm's revenue decline for the New York Times is bearish with a projected 3.5% drop versus the Street's consensus of a 1.2% decline for the year.
"The risk of broader economic weakness suggest to us that there is a significant probability that [the New York Times'] revenue outperformance gap is eliminated as categories like luxury advertising fail to provide an ongoing lift to results," Arns wrote.
Bank of America reiterated it's "sell" rating on the company.
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