What happened

Shares of The New York Times (NYSE:NYT) were getting crumpled up last month after the newspaper company offered a disappointing outlook in its second-quarter earnings report. As a result, the stock finished August down 18%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, shares fell sharply after the report came out on Aug. 7.

NYT Chart

NYT data by YCharts.

So what

The New York Times (NYT) saw revenue and digital subscriptions grow, a positive result at a time when a number of traditional media outlets are struggling. The NYT added 197,000 paid digital subscriptions in the quarter, and that figure increased 30.7% over the past year to 3.78 million, a sign that its digital strategy is paying off. 

A stack of newspapers fresh off the printing press.

Image source: Getty Images.

That jump drove overall revenue up 5.2%, to $436.3 million, but that was still below analyst estimates of $438.7 million. Adjusted operating profit declined slightly as the company continues to invest to grow subscriptions, and adjusted earnings per share held steady at $0.17, beating expectations of $0.15.

CEO Mark Thompson touted the company's strong subscriber growth as it moves closer toward its goal of reaching 10 million subscribers by 2025, and noted the successful launch of The Weekly, the Times' new TV program available on FX and Hulu, which opens up another potentially valuable channel of advertising revenue and programming.

Now what 

Despite those positive steps, investors were disappointed as the company said that advertising growth would slow in the second half of the year from 14% growth in the first half as comps will get more difficult.

For the third quarter, the company said that advertising revenues were expected to decline by high-single digits, which may have to do with lapping an election year last year as ad spending tends to spike with the election cycle. Additionally, the company said that operating costs would rise by high-single digits in the third quarter as it invests in new initiatives like The Weekly.

Though management didn't give specific profit guidance, those forecasts make it clear that the company expects profits to fall in the current quarter. Nonetheless, this sell-off seems shortsighted, as it's a smart move for the company to expand its brand into television and make investments to drive long-term growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.