Shares of The New York Times Company (NYT 2.30%) were down roughly 10% as of 3:45 p.m ET today after the large news publisher on Thursday afternoon announced its plan to purchase popular sports news website The Athletic.
The company said it would buy the subscription sports publisher for $550 million in an all-cash deal. The Athletic got big by stealing away big-time sports journalists from newspapers and other publications as the industry faced financial pressure.
The Athletic brings 1.2 million subscribers, which will make meaningful progress on the New York Times Company's goal of having 10 million paying subscribers by 2025. Currently, the Times has about 8.4 million paying subscribers.
New York Times Company CEO Meredith Kopit Levien is quoted as saying The Athletic is "a great complement to The Times" and that there is a "relatively modest" overlap of subscribers in both publications. The Athletic will remain an independent subscription once the deal is complete and will become a piece in the Times' subscription bundle.
The stock is taking a hit because the acquisition is expected to cut into operating profit for the next three years. Kopit said The Athletic reported a loss of $55 million last year on about $65 million of revenue.
Investors are likely miffed at the fact that company is paying about 8.5 times revenue for a company that will be dilutive to earnings.
However, I don't dislike the strategy as The Athletic brings a strong subscriber base, and I think other media companies have shown that sports subscribers can be profitable in multiple ways, so The Athletic's audience is essentially diversifying the subscription base. Levien was quoted as saying The Athletic would bring "extensive coverage for fans who seek a deep connection to and understanding of their favorite teams, leagues and players." Ultimately, I think whether the deal pays off will come down to how working with the larger company can improve The Athletic's financials.