Q3 2021 New York Times Co Earnings Call
Okay.
Good morning, and welcome to the New York Times Company's third quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Harlan So klitzke.
Vice President of Investor Relations. Please go ahead.
Thank you and welcome to the New York Times Company's third quarter 2021 earnings conference call on the call today, we have Meredith Kopit, Levien, President and Chief Executive Officer, and Roland Caputo, Executive Vice President and Chief Financial Officer.
Before we begin I would like to remind you that management will make forward looking statements. During the course of this call. These statements are based on our current expectations and assumptions, which may change over time, our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2020 10-K and subsequent SEC filings.
Given the impact of the that the COVID-19 pandemic had on our business in 2020, we will also present certain comparisons of our operating results in 2021 to 2019, which we believe in many cases provides useful context for our current year results in.
In addition, our presentation will include non-GAAP financial measures and we've provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors Dot N Y T C O dot com and finally, please note that a copy of the prepared remarks from this morning's call will be posted to our <unk>.
Bester website. Shortly after we conclude with that I will turn the call over to Meredith Kopit Levien.
Pardon me and good morning, everybody.
The times had a strong third quarter with the power of our subscription first strategy on full display.
It was our best third quarter in Bad news and total net subscription additions.
Launch of the digital pay model more than a decade ago.
And outside of 'twenty 'twenty, it was our best quarter ever for digital subscription additions.
Hit an important milestone during the quarter. The times now has more than 1 million international digital subscriptions.
Said for some time that we see a huge opportunity to reach curious English speaking people not just in the U S, but around the globe and we continued to prove that out in Q3, we added a total of 455000 net new digital subscriptions in the quarter, including 302.
20000 for news and 135000 for games cooking and wire cutter.
This progress reflects the enduring demand for quality independent journalism, and our long term potential to be more and more people across a range of news unlike needs.
Total revenues grew 19% in the quarter with digital subscription revenue rising 28%.
Advertising up 40% for both print and digital as a result, adjusted operating profit grew 15%. Despite a 20% increase in adjusted operating costs.
The quarter was a busy one in news while Covid remained the dominant story than it has for the last 20 months a wide range of topics also captured the public's attention, including the Afghanistan withdrawal and the tragic events in Haiti, the resignation of new Yorks Governor and our ongoing climate reporting.
Thank you.
These are the kinds of stories that are 2000 person journalism operation is uniquely positioned to cover with depth and thoughtfulness.
The news cycle no doubt played a role in the quarters performance, but so too did our improved command over the levers of our model.
I've talked in the past about our efforts to build enduring daily habits, whatever the news cycle. Those efforts are now bearing fruit a prime example is our flagship newsletter the morning, which now has more than five and a half million daily readers not only does the morning provides real value to our odd.
And helping them quickly digest the days most important stories, it's programming mix is increasingly effective at driving people on site.
That plus improved marketing messaging makes it a steady source of new subscription.
We improved conversion in the quarter with a variety of planned experiments across the customer journey, we're using data and machine learning and increasingly sophisticated ways to identify the right moment to ask or leader to become a subscriber.
Tests involving our algorithmic meter and paywall had been particularly promising.
We also continue to experiment more broadly with friction and value exchange to find the right balance between converting readers into paying subscribers and growing the pool of prospects at the top of the funnel.
Some of those experiments entailed more aggressive limiting of access to our journalism for non subscribers, which had a meaningful positive impact on starts in the quarter. We've loosen those restrictions somewhat in the current quarter as we fine tune and balance the model.
We're also working to improve and differentiate the subscriber experience to showcase the benefits of subscribing to prospects and also to drive retention to that end, we introduced a portfolio of subscriber only newsletters in the quarter leveraging some of our existing newsletter.
With strong followings like Paul Krugman watching and well, we also launched several new newsletters, including Professor John Mcwhorter race, and language and trustee Mcmillan cotton on culture politics, and the economics of our everyday lives.
As a result of strong demand for news and strengthen conversion in the quarter, we were able to profitably increase media spending that two contributed to a record quarter for net additions and we did so while our mix of paid and organic starts remained heavily weighted to organic.
We continue to pay close attention to churn, which will require increased focus and energy as our subscription base grows.
As I've said in prior calls, we generally view, our churn rate, which has vacillated within a relatively narrow band over the last few years as a strength.
That continued in the third quarter with a slight improvement we expect we expect pressure on churn in the fourth quarter as promotional pricing and for the cohort that started last year around the presidential election.
Does credit card regulation tightening in some markets.
We continue to believe that our focus on driving repeat engagement and on enhancing the subscriber experience will reduce reasons to cancel over time.
One of the ways, we intend to boost engagement and showcase the benefits of subscribing is by getting more people to experience the full value of the times, including our current standalone products cooking games and wire cutter.
Success of these standalone products alongside the growth of our core news product begins to demonstrate the potential of our multi product bundle as.
As we experiment more with cross promotion, we're seeing more news readers also engaged deeply with cooking and games over time, we expect that a bundled offering all of our products can play a big role in driving conversion and giving subscribers more reason to engage and retain.
In the meantime, cooking games continue to show promise as compelling propositions for subscribers in their own right with each product nearing a million total subscriptions.
Net subscription additions to games were 35% higher in Q3 than the prior quarter and more than 20% higher than last year cooking net additions more than doubled quarter over quarter and were on par with last year's elevated Q3 with a first time price promotion.
An access model experiments driving the result.
We also launched paid subscriptions to wire cutter in the quarter, while a relatively small contributor to overall subscription additions it's off to a promising start, especially among existing time subscribers with 10000 net subscriptions in the first month.
It's been a fertile period for product development at the time, but within and beyond our existing products last month, we announced that will test new digital experience, we're calling New York times audio it's a single destination for listeners to enjoy the full range of our audio storytelling, which too.
Today reaches 20 million listeners a month, we also officially launched a beta for a digital kids how to product inspired by our popular monthly print Kid's section.
Costs were higher in the third quarter, largely driven by higher paid media expenses as well as the strategic investments, we're making in journalism product development and technology to allow our digital subscription business to scale efficiently. The guidance, we provided in our earnings release suggest.
A similar level of cost growth in the fourth quarter, including increased marketing costs as I've said in the past you can expect us to continue to invest into our long term opportunity to lay the foundation for a larger more profitable business over time.
Turning to advertising, we had another strong quarter of revenue growth while year on year growth slowed in the third quarter compared with the second as expected digital advertising revenues grew 22% compared with 2019, the same rate of growth since we reported in the second quarter, our third quarter results.
Continued to reflect the benefits of the overall market recovery as well as marketer interest in our proprietary products, including the first party data that stems from our subscription business and our growing offering of captivating podcasts.
I'll close by reiterating that our business success is tied inextricably to our mission of helping people understand the world key to that is hiring the best journalistic talent available several exceptional journalist joined us in recent months, including Lulu.
Garcia Navarro from NPR, Peter Coy from Bloomberg business week, and Paul Wolpe, who returned to the times from Politico, where he was executive editor and.
And before I turn it over to Roland I also want to make note of an effort by many of my colleagues to evacuate 159 of our current and former times colleagues and their families from Afghanistan. These Afghan colleagues and so many others fleeing the country went through a harrowing.
And it has been nothing short of awe inspiring to watch this institution come together to help I'm incredibly grateful to the many colleagues who supported their journey to safety and continue to do so as they resettle and with that over to you Roland.
Thank you Meredith and good morning.
Fundamental strength in the underlying business exemplified by strong digital subscription unit growth and healthy growth in both subscription and advertising revenues resulted in strong financial performance in the third quarter.
Adjusted diluted earnings per share was 23 cents in the quarter <unk> higher than the prior year.
We reported adjusted operating profit of $65 million higher than the same period in 2020 by $9 million and $21 million higher than 2019, which we continue to believe is an important comparison point given the impact that the pandemic had on our 2020 results.
As Mary noted, we added 320000 net new subscriptions to our core digital news product and 135000 net new Standalone subscriptions to our other digital products for a total of 455000 net new digital only subscriptions.
As of the end of the quarter, we had approximately 980000 game subscriptions approximately 900000 cooking subscriptions and 10000 wire cutter subscriptions the wire cutter subscription offering having launched at the beginning of September.
The international share of total new subscriptions remains at 18% as of the end of the quarter.
Total subscription revenues increased nearly 14% in the quarter with digital only subscriptions revenue growing nearly 28% to approximately $200 million.
Digital only subscription revenue grew as a result of the large number of new subscriptions, we added in the past year.
Continued strength in retention of the dollar per week promotional subscriptions were graduated to higher prices and to a much lesser extent the impact from our digital subscription price increase.
Digital news subscription <unk> for the quarter increased approximately five percentage points compared to the prior year and nearly one percentage point compared to the prior quarter.
This improvement in both the year over year and sequential result was primarily due to subscriptions graduating from their introductory price to either full price or an intermediate step up price in the quarter as well as the continued benefit from price increases on our more tenured full price subscriptions.
<unk> related solely to domestic new subscriptions increased six five percentage points versus the prior year and approximately one five percentage points versus the prior quarter.
We continue to expect the impact from subscriptions, graduating from discounted promotions and the price increase on tenured digital subscriptions to provide a tailwind to digital news <unk> through the balance of this year.
Print subscription revenues declined 1% as overall volume declines more than offset the benefit from the first quarter home delivery price increase.
Total daily circulation declined approximately 7% in the quarter compared with prior year, while Sunday circulation declined approximately 5%.
Compared with 2019 print subscription revenues declined 5% as single copy and international bulk sales copies declined while revenue from domestic home delivery subscriptions grew one 7%.
Total advertising revenues increased 40% in the quarter as both digital and print advertising grew approximately 40%.
In large part as a result of the impact of the comparison to weak advertising revenues in the third quarter of 2020.
Digital advertising continued to be buoyed by our proprietary first party targeted AD products and expanded audio product portfolio.
Compared with 2019 digital advertising grew more than 22% as a result of higher direct sold advertising, including traditional display and audio.
Meanwhile, print advertising increased 39% compared with 2020, primarily driven by growth in the luxury and entertainment categories.
However, print advertising remains below 2019 levels by 25%.
Other revenues increased 19% compared with the prior year to approximately $56 million.
Primarily as a result of higher licensing commercial printing associated with the addition of the Dow Jones family of products to our operations and wire cutter affiliate referral revenue.
Adjusted operating costs were higher in the quarter by approximately 20% as compared with 2020 and approximately 16% higher than 2019.
Cost growth came in at the top end of the guidance. We issued in early August largely due to the profitable deployment of additional marketing media above initial estimates.
Cost of revenue increased 9% as a result of growth in the number of newsroom games cooking and audio employees higher subscriber servicing costs are higher incentive compensation accrual and other costs in connection with the production of audio content.
Sales and marketing cost increased more than 65% driven primarily by higher media expenses, which had been reduced last year in light of the historically strong organic subscription demand.
When compared to 2019 sales and marketing cost increased more than 30% while media expenses were approximately 54% higher.
We expect media expenses to remain elevated in the fourth quarter.
Product development costs increased by approximately 18% largely due to the growth in the number of engineers and a higher incentive compensation accruals and had been recorded in the third quarter of 2020.
General and administrative costs increased by 26% largely due to a higher incentive compensation accruals and increased head count in support of employee growth in other areas stock price appreciation on stock based awards and higher consulting costs.
We recorded one special item in the quarter, a $27 million gain related to a non marketable equity investment transaction, which is reflected on the interest income and other line of our income statement.
Our effective tax rate for the third quarter was approximate 27%, which is in line with the rate. We expect on every dollar of marginal income we report with the possibility of significant variability around the quarterly effective rate.
Moving to the balance sheet, our cash and marketable securities balance ended the quarter at $1 $43 million, an increase of $96 million compared with the second quarter of 2021.
The company remains debt free with a $250 million revolving line of credit available.
Let me conclude with our outlook for the fourth quarter of 2021.
Total subscription revenues are expected to increase approximately 12% compared to the fourth quarter of 2020.
Digital only subscription revenue expected to increase approximately 25%.
Overall advertising and digital advertising revenues are expected to increase in the mid teens compared with the fourth quarter of 2020.
The expectation that the rate of digital advertising growth will slow compared with our third quarter is partially a result of more difficult comparisons in the fourth quarter.
Other revenues are expected to increase approximately 15%.
Both operating costs and adjusted operating costs are expected to increase approximately 17% to 20% compared with the fourth quarter of 2020, as we continue investment into the drivers of digital subscription growth and compare against another quarter of low spending last year.
And with that we'd be happy to open it up for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Thomas.
With Morgan Stanley. Please go ahead.
Hi, Good morning, Thanks for taking my question Meredith can you talk a bit more about the experimentations during the quarter around them are aggressive limitations on access for non subscribers. And then you said you were leaning back a bit and for Q do you see that as a continued lever to pull during hotter new cycle period.
And given some of the pressure you are anticipating on churn and <unk>. What are the things you plan to do differently to drive paid conversion in <unk> relative to <unk> and then secondly can you give us an update on the advertising trends by category and whether <unk>, our supply chain inventory constraints that we've been hearing about on the advertiser side.
Have any impact on the demand that you're seeing thank you.
Yes. Good morning comments, that's lots of questions. Let me see if I can remember them all in and try and answer.
I'll do that advertising question first.
We have not seen a huge I think youre asking if we ton impact of <unk>. We are I would say on the AD side less exposed to that we tend to be an upper funnel business a lot of our advertising and brand advertising.
The advertising.
People buy from us so we have not seen a huge impact from that we didn't see it in the third quarter, we don't expect to see a huge impact.
But you know that.
That could have impact on just overall demand in the market that that remains to be seen but it's not been a big factor and I would say we are less exposed because the nature of our AD business I think that's your primary AD question, yes.
Yeah and in supply chain inventory constrained, yeah, I think listen.
Similarly.
We did not see a big impact from all of the issues around product supply chain that many others have reported in the third quarter and I would attribute that to our AD business being largely driven by upper.
Upper funnel and middle funnel advertising versus versus lower funnel that doesn't mean that we won't see some compression from that it's hard to imagine that doesn't ultimately affect total marketer spend over time I think the bigger bigger than you are hearing from us on the guide in the fourth quarter is.
Just the comp starts to get harder because the market started to recover last year and that's all within in the range of expectation that that Roland and I am suggested previously.
On your first question, let me, let me try and get it and you'll you'll help me out if I missed any of it in.
In terms of experimentation on conversion, we did a number of things.
In the quarter and this was all we referred to visa.
Things on our product roadmap earlier in the year.
We are getting.
Just better more sophisticated more precise about using them.
Using machine learning.
In in how we present, our paywall and when we ask people to subscribe that we've got more signal, we're using that signal more actively we've got different different ways to apply it in the models just get more sophisticated over time and I would say you can expect that Ross lead to continue that just kind of.
Gets better and better for the most part you experiment and that continues to improve we also experimented more aggressively on on the access model in various parts of the customer journey and in some cases that meant more restriction of access.
To our journalism for non subscribers and I'd say those experiments worked very very well and what what is always the case with US is when something really works. We will then look at it and say how do we make sure. This is is very sustainable over time, so what I.
Scribed in my prepared remarks is that we.
We were more aggressive about restricting access in the third quarter. It played a big role in the results and we're loosing that somewhat in the fourth quarter, which is not unusual just has us kind of fine tuning and calibrating the model.
I think that was the whole of your question I can't remember if you asked me about churn as well.
Yeah, just touching on the anticipated churn and for Q is the right way to think about that generally just that there was a larger kind of funnel of gross acquisitions in starts in <unk> relative to <unk> because of the elections and Thats why were or maybe yes. There is a big group of people coming up for transit.
A full price because of the election in fourth Q2 thousand 20, so you've got a large cohort of people who will go through transition of full price and then I mentioned.
Also some pressure on churn from some of the changes in credit card regulations. We are seeing in some markets. Roland I don't know if you have anything to add on that or the markets that we're seeing the regulation changes.
Imminent or outside the U S.
Okay very helpful. Thank you.
The next question comes from will <unk> with Cannonball Research. Please go ahead.
Thank you good morning, I have a couple one.
Earlier this year about your outlook for the EBITDA margin next year. So I was wondering if you could give us an update on your thinking there and the second question is for you and it's about your view on the rise of such platforms as sub stack.
Do you see them as a competitor.
You see it because it complementary product.
Just would appreciate your view on.
On the part of the online journal of its market.
So best Daily I'll take the margin question first I think the first thing I want to give a little context to how this year played out because it's important in answering the question.
We've gotten quite a bit more AD revenue coming in the door. This year than we had expected and so when we spoke to earlier in the year.
Results. This year have been buoyed by very high margin AD business. So we got a little bit more margin than we expected to this year.
So in.
Essence, it moved forward a bit so I don't see a lot of movement on margin next year Meredith mentioned, a few times we continue.
To invest in the growth because we believe we have.
A very big opportunity and while there is natural leverage in the business and we want to see that flow through.
If that becomes is in conflict with investment we think is going to grow the business long term and tap into that great opportunity, we're going to we're going to lean towards.
A bigger and more profitable business out in the future versus trying to bring money to the bottom line immediately.
Annual Merit did you want to add anything to it I think you said that just right.
On your sub sack question I'll say, a couple of things one we are quite confident that the broad value proposition.
Across the times, but from our core news report and.
And our Standalone products is sufficiently competitive.
That we're going to keep growing even as as new players emerge. So I think that's probably the first and most important thing to say I'll take two specific things about sub sack. One I would regard anything that is about helping make the market for.
Paid digital journalism is good.
This is still a forming market and I would regard.
All efforts to get more people to think about.
About paying for high quality journalism is a positive thing and I would then just say on sort of our proposition, particularly in subscriber only newsletters.
You might.
It might come to the times, because someone like Kara Swisher, John Mcwhorter, <unk> Mcmillan Cotton has has a newsletter that you want to follow and buy and pay for that but you get the whole of the New York times value proposition with that and so I would say we believe.
Strongly that the competitive proposition that we've got more that the value proposition. We've got is a very competitive one.
Thank you very much.
The next question comes from Craig Huber with Huber Research partners. Please go ahead.
Thank you I guess my first question on your marketing spend up 50% plus year over year.
It seems pretty clear right that youre getting very good leverage on that spending it sounds like can you repeat.
Hi, number again in the fourth quarter I know, it's tough to break out in your mind Meredith.
The marketing spend versus the new cycle versus what youre doing on the backend to try and improve.
Digital subscriber growth how much of that is attributable you think a percentage basis. If you have any broad sense with the higher marketing spend.
Yeah.
I think I understand your question and then I'll say generally.
I've said this on previous calls we spend it.
Two demand.
And even in this particular quarter in the third quarter we.
We spent significantly more money, but R. R.
Our net additions are starts still team primarily in first and most through organic means that we're still holding ourselves to.
Two standard on profitability and we.
We still spent within our guardrails, so I'd say that that for US is quite good and I think both Roland and I have said in the past it it's almost the opposite of what people believe your sort of spend into a high conversion environment spend into demand and we can we can do so profitably, but the long view is that.
The model will continue to be disproportionately weighted to the product itself as the primary engine of demand not paid media not paid marketing, but where we can spend profitably we will do that too.
To grow faster.
The other question.
Maybe talk about the addressable market in the U S. But also globally can you put some numbers around that you've done that in the past is that changed in your mind at all for digital digital subs.
Did you ask total Tam or international or both I'm, sorry U S and.
In global whoever you want to look at it yes, we still believe that there are at least 100 million people.
To speak English English English speaking college educated around the world, who will pay for quality journalism through a digital subscription we think at least half that market is in the United States half of it is outside the United States.
I'd say our confidence that the market is there.
Is at least as good as it was and potentially growing.
International We've I think we've talked about this before but I'll say.
We think have that audiences at least half of it is outside the United States.
We're probably looking at a second read audience. So it's not just people who will pay for.
Digital subscription to quality journalism that someone will pay for two and our assumption is that we can win a larger share of the second REIT market, which is probably smaller than 50 million people, but that we can win large share in that and I'll. Just say one more thing I think we still have real running room domestically or <unk>.
Our national strategy in pursuit of that opportunity presupposes that we continue to lead in advance that lead domestically.
My final question, if I may for the fourth quarter, maybe just help us think about.
What are you expecting generally for your news only digital sub additions in the fourth quarter as high as you saw in the third quarter quite a stellar number more of an average of the two middle quarters for the fourth quarter, how you sort of thinking about that.
And my other question related to that is what happened in the third quarter with the last month month, and a half that came in significantly better than perhaps you originally thinking.
Yeah, Let me let me let me take the first question and just say, we're going to continue to see variability from quarter to quarter and where it is.
It's why we don't guide quarterly on on net adds.
On one hand, youre seeing us gain more control of the levers and on the other hand. We also all know that there are plenty of outside forces that that can affect our business in any given quarter, so with that in mind.
Don't have more guidance to give you than what Roland has already said from a revenue perspective, you can go back to what I said in the prepared remarks.
And draw some of your own conclusions that we've said.
We really succeeded in our experiments around tightening access and were listening some of that in the current quarter. I also said that we expect to see more pressure on churn.
For some specific reasons in the current quarter and at the same time the fourth quarter. If you look at the trajectory and Standalone products tend to be a brisk period in stand alone. So I think I'll leave it at that.
Thank you.
The next question comes from non catastrophe <unk> with Barclays Capital. Please go ahead.
Okay.
Thank you.
Meredith Firstly on the advertising side I think you know over the last few years has broadly been the philosophy I think of leaning more towards subscription and less on advertising.
But it feels like the advertising business.
On the digital side is becoming a lot more stable and you'll have a bit more visibility around it.
So if you could just help us understand with new products like audio for example.
Should we expect that trend line.
Become more stable as you go into the coming quarters, and then related to that.
What's the contribution margin for digital advertising versus print because you do have some more costs I would assume.
On the digital side versus print.
So I'm just trying to figure out what the contribution margin is hired on board and I have a follow up.
Yeah, and then Roland will probably give you a better detailed answer on your second question. Let me, let me take the first one and maybe pay a little bit about the second one in general I think I said this last quarter, we like our AD business better now and we particularly like our digital AD business better.
And in the sense that it is much more about our proprietary first party data products applied to media, where I think we still have plenty of running room.
That business now sort of runs on the same high octane gas that the subscription business runs on which is a real strength for.
The whole model and that's deeply engage registered logged in users, whose whose data we have access to in privacy forward ways. So that does hold.
We believe that <unk> has had and could continue to have a stabilizing effect on the AD business and.
And we like that very much we're a little bit less susceptible to.
The swings from big deals from from one quarter to the next we also are optimistic about and really like our position in audio there seems to be quite a bit of demand for high quality audio.
And we've got a great suite of audio products that were that are really performing well with marketers and because by the way, they're performing well with consumers. So so we like all of that and to your point.
Thus far it has seemed to have and could have going forward.
<unk>.
More stable character all of that said I'll, just repeat that they Roland but said now for some time advertising in general tends to be more demand driven business and supply driven business. I think we are better positioned to go after that demand and then we have been in some time, but it is still.
Demand driven in the market can change pretty quickly and the market has also shaped and dominated by very large platform players that operate at a scale that's different from the times and so we don't rule out.
That there can be significant swings in any part of the business as a result of that Roland I don't know if you'd add anything.
Want to comment on general comment on the margin question a couple of things to say can on one is we run that.
Digital AD business at a much higher margin profile today than we did say two or three years ago. So that's kind of one point of information relative to print it really depends on mix. So if we're selling straight display in digital I would say the margins are comparable to print.
But if we're if we're heavily using creative services to support the sale.
Or if it's a large partnership where we're creating.
Content and other digital assets.
Associated with itself the margins not as good in digital.
In terms of total margin a lot of it depends on that mix.
More heavily weighted to display the higher the margin.
Got it.
And I guess broadly in terms of sales and marketing spend.
Meredith you mentioned that you know.
Organic growth is driving a bigger part of your total acquisitions.
So when you frame the spending around media.
How do you how do you think about it is as a percentage of revenues is it basically some of the framework, which is more bottom line dependent how would you frame. The total amount do you want to spend on sales and marketing in a given quarter.
Yes, I'll take that question come on so first I want to break out.
Brand from from direct acquisition spend so, let's let's talk about direct acquisition spend for a moment.
We guide that based on an internal rate of return.
We will spend.
Particular channels the markers will spend into particular channels until they drop below that.
Rate of return and then they wont spend any more so thats really the guide is is completely on our return on on on Sac.
Brand is different we will pick a particular moment in time to spend brand money.
We're actually ramping into that now so a bit of the elevated spend in Q4 is actually going to be brand.
Not direct acquisition spend.
And then we've been pretty much running it that way for quite a while and just one other point I think when <unk> talked about organic becoming a bigger part she is talking about over the long term.
The percent of starts that have been coming from organic has been bouncing around in a pretty narrow band for for quite a while now with with the vast majority of it.
Being organically driven.
So just as a follow up to that I mean, if a bigger part of the spending is queuing towards media and brand advertising is it fair to say that when.
When you look at your CAC members.
Those have essentially improved over maybe the last couple of years I mean has it gone down overtime.
Well so so last year again last year was such a special year than they were the CAC numbers were very low last year. The LTV to CAC numbers were very high they've come back in line.
More looking more like they did in 2019 at this point and we're really happy with where they are and as I said before where we're very.
Focused on that hitting that internal rate of return as our guide. So I think we emphasized and I did in my script that that debt.
Overspend in marketing was all productive and profitable otherwise, we would not have deployed that cash in that manner.
Thank you so much.
The next question comes from Doug Arthur with Huber Research Partners. Please go ahead.
Yeah. Thanks, two questions. Roland you had said at the beginning of the year on the cost side that one mitigating factor would be your ability to hire the talent you.
Youre seeking so I guess my question is.
Is that starting to ease and what is your head count up year over year.
I've got a follow up.
Yeah, I'm happy to take that talent question broadly I would say in journalism.
It's going quite well in terms of our ability to hire talent.
On the product and technology and engineering side, we're optimistic that over a long time horizon. This will continue to be a really compelling place for people to work I will say, though that we are subject to the same sort of labor market forces that every other business with the scaling digital product.
Is subject to which is there is there is enormous competition for engineering talent data talent digital product talent and design talent.
And so we're incredibly focused on that I think over a long time horizon.
We will.
This will be.
Place where.
We it will be a very compelling place for people to work I think we moved a little more slowly than we would have liked this year so far on hiring.
In terms of the increase in head count, it's it's roughly 56% up.
Okay.
Just as a follow up to that Meredith I mean.
You've talked about the tech stack at the New York Times, not being where you think it ought to be eventually.
I guess, how can you how do you frame that in terms of what inning. You believe you are in terms of getting to where you want to be and you've talked about your success in conversion in the third quarter. It yeah yeah.
Yeah.
I have to think about the inning question.
What popped into my head was made.
Maybe third or fourth but let me let me.
I'm not even sure that that's right. Let me, let me say it differently, which is where I think we are quite sophisticated is on the consumer facing <unk>.
Variance front, so driving engagement driving conversion.
Rapid experimentation I mean, the quality and the pace of experimentation has gone up pretty dramatically in the last couple of years.
There we are putting a lot of effort and still have long arc work to do is in the back end underlying platforms and systems, which I think.
Really.
Really matter, we actually I think we announced last quarter I cant cant remember.
I'm getting a thumbs up from from Heartland, We just hired new CTO, who I'm Super excited about a guy named Jason <unk>, who.
Was was previously at Airbnb for five and a half years. He was at Facebook for I think half a dozen years and it's early early days and arc of growth and he comes with a pretty deep.
Backend infrastructure background, and we talk a lot about this next phase of our strategy is sort of getting to scale with journalism worth paying for and a lot of that is about having the platforms in core tech and data.
To make sure we can do that so you can imagine that is going to continue to be a real area of focus for us I'm optimistic that we're on the right track more optimistic than I've been in some time and there's plenty of work still ahead of us.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Harlan <unk> for any closing remarks.
Thank you for joining us. This morning, we look forward to talking to you again next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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